Leveraged Buyouts and Insider Nontrading

W. V. Harlow and John S. Howe

Financial Management, 1993, vol. 22, issue 1

Abstract: This paper examines trading by corporate officers and directors ("insiders") in the 12 months prior to management buyouts (MBOs) and third-party leveraged buyouts (LBOs). The investigation is motivated by the widely held belief that, in a management buyout, the firm's managers exploit shareholders by acting on inside information not possessed by the shareholders. Specifically, insiders may increase their purchases of shares prior to a buyout either to subsequently sell at the higher post-announcement price or to reduce the number of shares that must be purchased at the buyout price to complete the transaction.

Date: 1993
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