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Insider Trading, Option Exercises and Private Benefits of Control

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Author Info

  • Cziraki, P.
  • Goeij, P. C. de
  • Renneboog, L.D.R.

    (Tilburg University, Tilburg Law and Economics Center)

Abstract

We investigate patterns of abnormal stock performance around insider trades and option exercises on the Dutch market. Listed firms in the Netherlands have a long tradition of employing many anti-shareholder mechanisms limiting shareholders rights. Our results imply that insider transactions are more profitable at firms where shareholder rights are not restricted by anti-shareholder mechanisms. This finding goes against the monitoring hypothesis which states that more shareholder orientation and stronger blockholders would reduce the gains from insider trading. We show robust support for the substitution hypothesis as insiders of firms which effectively curtail shareholder rights enjoy valuable private benefits of control in lieu of engaging in insider trading to exploit their position.

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Bibliographic Info

Paper provided by Tilburg University, Tilburg Law and Economic Center in its series Discussion Paper with number 2010-015.

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Date of creation: 2010
Date of revision:
Handle: RePEc:dgr:kubtil:2010015

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Web page: http://www.tilburguniversity.nl/tilec/

Related research

Keywords: insider trading; management stock options; timing by insiders; corporate governance; antishareholder;

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Cited by:
  1. : Jana P. Fidrmuc & Adriana Korczak & Piotr Korczak, 2012. "Why does Shareholder Protection Matter for Abnormal Returns after Reported Insider Purcases and Sales?," Working Papers wpn12-03, Warwick Business School, Finance Group.

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