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Leveraged Buyouts and Insider Nontrading

Author

Listed:
  • W. V. Harlow
  • John S. Howe

Abstract

This paper examines trading by corporate officers and directors ("insiders") in the 12 months prior to management buyouts (MBOs) and third-party leveraged buyouts (LBOs). The investigation is motivated by the widely held belief that, in a management buyout, the firm's managers exploit shareholders by acting on inside information not possessed by the shareholders. Specifically, insiders may increase their purchases of shares prior to a buyout either to subsequently sell at the higher post-announcement price or to reduce the number of shares that must be purchased at the buyout price to complete the transaction.

Suggested Citation

  • W. V. Harlow & John S. Howe, 1993. "Leveraged Buyouts and Insider Nontrading," Financial Management, Financial Management Association, vol. 22(1), Spring.
    • Handle: RePEc:fma:fmanag:harlow93
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    Citations

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    Cited by:

    1. Mike Wright & Luc Renneboog & Tomas Simons & Louise Scholes, 2006. "Leveraged Buyouts in the U.K. and Continental Europe: Retrospect and Prospect," Journal of Applied Corporate Finance, Morgan Stanley, vol. 18(3), pages 38-55, June.
    2. Martineau, Nicolas-Guillaume & de Vanssay, Xavier, 2019. "Sinning by omission: Insider trading and ethical behavior," Journal of Economics and Business, Elsevier, vol. 104(C), pages 1-1.
    3. Renneboog, L.D.R. & Simons, T., 2005. "Public-to-Private Transactions : LBOs, MBOs, MBIs and IBOs," Other publications TiSEM 3b76799c-591c-4d22-b126-a, Tilburg University, School of Economics and Management.
    4. Agrawal, Anup & Nasser, Tareque, 2012. "Insider trading in takeover targets," Journal of Corporate Finance, Elsevier, vol. 18(3), pages 598-625.
    5. Duran-Fernandez, Roberto, 2023. "Unlocking the Potential of MBOs," EconStor Preprints 280774, ZBW - Leibniz Information Centre for Economics.
    6. Michael R. King, 2009. "Prebid Run‐Ups Ahead of Canadian Takeovers: How Big Is the Problem?," Financial Management, Financial Management Association International, vol. 38(4), pages 699-726, December.
    7. Renneboog, Luc & Simons, Tomas & Wright, Mike, 2007. "Why do public firms go private in the UK? The impact of private equity investors, incentive realignment and undervaluation," Journal of Corporate Finance, Elsevier, vol. 13(4), pages 591-628, September.
    8. Olivier MEIER & Aurélie SANNAJUST, 2014. "Public to Private transactions and cognitive biases: A European study," Working Papers 2014-345, Department of Research, Ipag Business School.
    9. Van de Gucht, Linda M. & Moore, William T., 1998. "Predicting the duration and reversal probability of leveraged buyouts," Journal of Empirical Finance, Elsevier, vol. 5(4), pages 299-315, October.
    10. Pierpaolo Pattitoni & Barbara Petracci & Massimo Spisni, 2015. "“Hit and Run” and “Revolving Doors”: evidence from the Italian stock market," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 19(2), pages 285-301, May.
    11. Renneboog, L.D.R. & Simons, T. & Wright, M., 2005. "Leveraged Public to Private Transactions in the UK," Discussion Paper 2005-60, Tilburg University, Center for Economic Research.
    12. James Ang & Irena Hutton & Mary Anne Majadillas, 2014. "Manager Divestment in Leveraged Buyouts," European Financial Management, European Financial Management Association, vol. 20(3), pages 462-493, June.
    13. Claire Y.C. Liang & Zhenyang Tang & Xiaowei Xu, 2020. "Return Synchronicity and Insider Trading Profitability," International Review of Finance, International Review of Finance Ltd., vol. 20(4), pages 857-895, December.
    14. Hashem Valipour & Javad Moradi & Ehsan Heshmatzade, 2013. "Studying the Effect of Market Competition on the Auditing Fees and the Operational Costs Efficiency as the Agency Costs Indexes," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 3(3), pages 95-104, July.
    15. Steen Thomsen & Frederik Vinten, 2014. "Delistings and the costs of governance: a study of European stock exchanges 1996–2004," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(3), pages 793-833, August.
    16. Renneboog, Luc & Vansteenkiste, Cara, 2017. "Leveraged Buyouts : A Survey of the Literature," Other publications TiSEM 573ebdd5-a720-4110-8ed1-e, Tilburg University, School of Economics and Management.
    17. Laurel Franzen & Xu Li & Oktay Urcan & Mark E. Vargus, 2014. "The Market Response To Insider Sales Of Restricted Stock Versus Unrestricted Stock," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 37(1), pages 99-118, February.
    18. Du, Julan & He, Qing & Yuen, San Wing, 2013. "Tunneling and the decision to go private: Evidence from Hong Kong," Pacific-Basin Finance Journal, Elsevier, vol. 22(C), pages 50-68.
    19. Robert C. Hanson & Moon H. Song, 1995. "Managerial Ownership Change And Firm Value: Evidence From Dual-Class Recapitalizations And Insider Trading," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 18(3), pages 281-297, September.
    20. Luke M. Bennett & Wei Hu, 2023. "Filtration enlargement‐based time series forecast in view of insider trading," Journal of Economic Surveys, Wiley Blackwell, vol. 37(1), pages 112-140, February.

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