Insider trading and firm performance following open market share repurchase announcements

What is it about?

We posit that insider trading following share repurchase announcements reveals private information concerning the future operating performance of announcing firms. In particular, insider abnormal purchases (abnormal sales) should predict an improvement (decline) in operating performance that leads to higher (lower) long-run stock returns. Our hypothesis offers a credible economic link between insider trading and subsequent long-run stock performance through the intervening variable of operating performance. The empirical results show consistency with this linkage.

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Photo by Markus Spiske on Unsplash

Photo by Markus Spiske on Unsplash

Why is it important?

Our empirical results show that private information relevant to the future change in operating performance is associated with the long-term financial market performance of firms subsequent to open market repurchase announcements.