Changes in Equity Ownership and Changes in the Market Value of the Firm

Henri Servaes and John J. McConnell
Authors registered in the RePEc Author Service: Karl V. Lins

No 4411, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study the stock price response to announcements of share purchases by corporate insiders over the period 1994 through 1999. The cross-sectional variability in the response is consistent with a curvilinear relation between firm value and insider ownership, where the value of the firm first increases, then decreases as insider ownership increases. These results are consistent with a causal interpretation of the relationship between insider ownership and firm value. The results of further tests are inconsistent with an interpretation that the firms in our sample are moving toward a new equilibrium ownership level or that insiders are purchasing shares to signal that the firm is undervalued.

Keywords: Insider ownership; Firm value; Executive stock purchases (search for similar items in EconPapers)
JEL-codes: G14 G32 (search for similar items in EconPapers)
Date: 2004-06
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Citations: View citations in EconPapers (9)

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