Double signals or single signal? An investigation of insider trading around share repurchases

Michael Firth; T. Y. Leung; Oliver M. Rui

doi:10.1016/j.intfin.2010.05.002

Double signals or single signal? An investigation of insider trading around share repurchases

Michael Firth, T. Y. Leung, Oliver M. Rui

Department of Accountancy

Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review

18 Citations (Scopus)

Abstract

We examine directors' dealing activity around share repurchasing periods in Hong Kong. There are significant insider trading activities before the share repurchasing period. Consistent with the signaling hypothesis, the directors' purchase activities during the share repurchase period are significantly higher than the expected level while the directors' sale activities are significantly lower than the expected level. Double signals of share repurchase and directors' purchases create a stronger signal in conveying undervaluation, while insider sales around share repurchase reduces the undervaluation signal. We find some evidence that is consistent with the free cash flow and signaling arguments for share repurchases. © 2010 Elsevier B.V.

Original language	English
Pages (from-to)	376-388
Journal	Journal of International Financial Markets, Institutions and Money
Volume	20
Issue number	4
DOIs	https://doi.org/10.1016/j.intfin.2010.05.002
Publication status	Published - Oct 2010

Research Keywords

Insider trading
Share repurchases
Signaling

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title = "Double signals or single signal? An investigation of insider trading around share repurchases",

abstract = "We examine directors' dealing activity around share repurchasing periods in Hong Kong. There are significant insider trading activities before the share repurchasing period. Consistent with the signaling hypothesis, the directors' purchase activities during the share repurchase period are significantly higher than the expected level while the directors' sale activities are significantly lower than the expected level. Double signals of share repurchase and directors' purchases create a stronger signal in conveying undervaluation, while insider sales around share repurchase reduces the undervaluation signal. We find some evidence that is consistent with the free cash flow and signaling arguments for share repurchases. {\textcopyright} 2010 Elsevier B.V.",

keywords = "Insider trading, Share repurchases, Signaling",

author = "Michael Firth and Leung, {T. Y.} and Rui, {Oliver M.}",

year = "2010",

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language = "English",

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journal = "Journal of International Financial Markets, Institutions and Money",

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T1 - Double signals or single signal? An investigation of insider trading around share repurchases

AU - Firth, Michael

AU - Leung, T. Y.

AU - Rui, Oliver M.

PY - 2010/10

Y1 - 2010/10

N2 - We examine directors' dealing activity around share repurchasing periods in Hong Kong. There are significant insider trading activities before the share repurchasing period. Consistent with the signaling hypothesis, the directors' purchase activities during the share repurchase period are significantly higher than the expected level while the directors' sale activities are significantly lower than the expected level. Double signals of share repurchase and directors' purchases create a stronger signal in conveying undervaluation, while insider sales around share repurchase reduces the undervaluation signal. We find some evidence that is consistent with the free cash flow and signaling arguments for share repurchases. © 2010 Elsevier B.V.

AB - We examine directors' dealing activity around share repurchasing periods in Hong Kong. There are significant insider trading activities before the share repurchasing period. Consistent with the signaling hypothesis, the directors' purchase activities during the share repurchase period are significantly higher than the expected level while the directors' sale activities are significantly lower than the expected level. Double signals of share repurchase and directors' purchases create a stronger signal in conveying undervaluation, while insider sales around share repurchase reduces the undervaluation signal. We find some evidence that is consistent with the free cash flow and signaling arguments for share repurchases. © 2010 Elsevier B.V.

KW - Insider trading

KW - Share repurchases

KW - Signaling

UR - http://www.scopus.com/inward/record.url?scp=77957301363&partnerID=8YFLogxK

UR - https://www.scopus.com/record/pubmetrics.uri?eid=2-s2.0-77957301363&origin=recordpage

U2 - 10.1016/j.intfin.2010.05.002

DO - 10.1016/j.intfin.2010.05.002

M3 - RGC 21 - Publication in refereed journal

SN - 1042-4431

VL - 20

SP - 376

EP - 388

JO - Journal of International Financial Markets, Institutions and Money

JF - Journal of International Financial Markets, Institutions and Money

IS - 4

ER -

Double signals or single signal? An investigation of insider trading around share repurchases

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