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Do corporate insiders use stock buybacks for personal gain?

Lenore Palladino

International Review of Applied Economics, 2020, vol. 34, issue 2, 152-174

Abstract: This paper investigates the hypothesis of whether corporate insiders sell their own personal shareholdings more frequently when they are executing stock buybacks using corporate funds. I examine transactions for nonfinancial corporations with publicly traded stock from 2005 to 2017, and find that net insider sales of over $100,000 are nearly twice as common in quarters when stock buybacks are also occurring than in non-buyback quarters. I conduct an empirical analysis of the relationship between stock buybacks insider transactions and find that a ten percent change in stock buybacks is associated with a half-percent change in corporate insiders selling their personal shareholdings, holding the other factors constant. The results suggest that executives may be taking advantage of the regulatory loophole left in the regulation of stock buybacks, and that policymakers should reform the regulations governing stock buybacks and corporate insider share-selling. I offer a set of policy recommendations to reduce the ability of corporate insiders to use stock buybacks for personal gain.

Date: 2020
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DOI: 10.1080/02692171.2019.1707787

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