Can insiders bail themselves out before private renegotiation?

Jasmine Yur‐Austin

Review of Financial Economics, 1998, vol. 7, issue 2, 197-211

Abstract: This study examines insider trading for a sample of firms that announce a workout agreement, controlling for both successful and unsuccessful workout attempts. I find that insider trading activity is related to the outcome of the workout proposal. Managers tend to bail out (sell shares) of firms that are unsuccessful in the workout process while they purchase shares prior to the workout announcements if the firms are ultimately successful in their workout. In addition, the evidence suggests managerial trading behavior is related to the workout market reaction. When a workout announcement is preceded by insider buying (selling), the stock price reaction is positive (negative). Overall, the evidence presented in this article is consistent with the notion that insider transactions convey private information to the stock market about a financially distressed firm.

Date: 1998
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Persistent link: https://EconPapers.repec.org/RePEc:wly:revfec:v:7:y:1998:i:2:p:197-211

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