Insightful Insiders? Insider Trading and Stock Return Around Debt Covenant Violation Disclosures

David Lont, Paul Griffin and Kate McClune

No 19194, Working Paper Series from Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation

Abstract: This paper documents significant trading by insiders around a first-time debt covenant violation disclosure in an SEC filing and is interesting from a research and regulatory standpoint because of three considerations - delay and relative infrequency of new covenant violation disclosures lack of attention to disclosure issues by regulators and dearth of research. Importantly we find a lead relation between net insider selling in the 12 months before a debt covenant violation disclosure and investors' negative returns and net insider buying up to 12 months after disclosure and investors' positive returns. This relation is robust to the presence of other information. These results support our contention that insiders' trades around a covenant violation disclosure may benefit from an information advantage unavailable to other market participants. The aggregate return to insiders - the sum of the losses avoided from selling and the gains from buying - approaches almost two billion dollars over an eight-year study period.

Keywords: insider trading; debt covenant violation disclosure; SEC regulation; insider trading enforcement; event study (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://ir.wgtn.ac.nz/handle/123456789/19194

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:vuw:vuwcsr:19194

Access Statistics for this paper

More papers in Working Paper Series from Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation ISCR, PO Box 600, Victoria University Wellington 6140, New Zealand. Contact information at EDIRC.
Bibliographic data for series maintained by Library Technology Services ().