Informed trading by non-financial companies

Sturla Fjesme

Applied Economics Letters, 2020, vol. 27, issue 3, 237-243

Abstract: It is well documented in the finance literature how share prices go up when companies increase dividend payouts. The long-term trend, however, is that more companies now retain excess cash rather than paying dividends. In this paper, I investigate if companies retain cash to invest on private information in domestic stock markets. I look at 20,620 domestic non-financial companies trading shares on the Oslo Stock Exchange (OSE) over the period 1993 to 2006. I find that companies earn excess risk-adjusted-returns from active trading. I conclude that companies retain at least some cash to take advantage of private information.

Date: 2020
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DOI: 10.1080/13504851.2019.1613489

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