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.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
4411.
Find related papers by JEL classification: G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
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