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Insider trading and corporate governance: The case of Germany

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  • Betzer, André
  • Theissen, Erik

Abstract

We analyze transactions by corporate insiders in Germany. We find that insider trades are associated with significant abnormal returns. Insider trades that occur prior to an earnings announcement have a larger impact on prices. This result provides a rationale for the UK regulation that prohibits insiders from trading prior to earnings announcements. Both the ownership structure and the accounting standards used by the firm affect the magnitude of the price reaction. The position of the insider within the firm has no effect, which is inconsistent with the informational hierarchy hypothesis. --

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Bibliographic Info

Paper provided by University of Cologne, Centre for Financial Research (CFR) in its series CFR Working Papers with number 07-07.

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Date of creation: 2007
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Handle: RePEc:zbw:cfrwps:0707

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Keywords: Insider trading; directors' dealings; corporate governance;

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References

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  1. Boehmer, Ekkehart & Masumeci, Jim & Poulsen, Annette B., 1991. "Event-study methodology under conditions of event-induced variance," Journal of Financial Economics, Elsevier, vol. 30(2), pages 253-272, December.
  2. Sylvain Friederich & Alan Gregory & John Matatko & Ian Tonks, 2002. "Short-run Returns around the Trades of Corporate Insiders on the London Stock Exchange," European Financial Management, European Financial Management Association, vol. 8(1), pages 7-30.
  3. Arturo Bris, 2005. "Do Insider Trading Laws Work?," European Financial Management, European Financial Management Association, vol. 11(3), pages 267-312.
  4. Rafael LaPorta & Florencio Lopez de-Silanes & Andrei Shleifer & Robert W. Vishny, 1996. "Law and Finance," Harvard Institute of Economic Research Working Papers 1768, Harvard - Institute of Economic Research.
    • La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert W., 1998. "Law and Finance," Scholarly Articles 3451310, Harvard University Department of Economics.
    • Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, . "Law and Finance," Working Paper 19451, Harvard University OpenScholar.
    • Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1996. "Law and Finance," NBER Working Papers 5661, National Bureau of Economic Research, Inc.
  5. Arturo Bris, 2000. "Do Insider Trading Laws Work?," Yale School of Management Working Papers ysm162, Yale School of Management, revised 01 Jun 2005.
  6. Corrado, Charles J., 1989. "A nonparametric test for abnormal security-price performance in event studies," Journal of Financial Economics, Elsevier, vol. 23(2), pages 385-395, August.
  7. Heiss, Florian & Köke, Jens, 2001. "Dynamics in ownership and firm survival: evidence from corporate Germany," ZEW Discussion Papers 01-63, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  8. B. Espen Eckbo & David C. Smith, 1998. "The Conditional Performance of Insider Trades," Journal of Finance, American Finance Association, vol. 53(2), pages 467-498, 04.
  9. Finnerty, Joseph E, 1976. "Insiders and Market Efficiency," Journal of Finance, American Finance Association, vol. 31(4), pages 1141-48, September.
  10. Jaffe, Jeffrey F, 1974. "Special Information and Insider Trading," The Journal of Business, University of Chicago Press, vol. 47(3), pages 410-28, July.
  11. Fidrmucova, J. & Goergen, M. & Renneboog, L.D.R., 2005. "Insider Trading, News Releases and Ownership Concentration," Discussion Paper 2005-025, Tilburg University, Tilburg Law and Economic Center.
  12. Lakonishok, Josef & Lee, Inmoo, 2001. "Are Insider Trades Informative?," Review of Financial Studies, Society for Financial Studies, vol. 14(1), pages 79-111.
  13. Emanuele Bajo & Barbara Petracci, 2006. "Do what insiders do: Abnormal performances after the release of insiders' relevant transactions," Studies in Economics and Finance, Emerald Group Publishing, vol. 23(2), pages 94-118, June.
  14. Wolfgang Drobetz & Andreas Schillhofer & Heinz Zimmermann, 2004. "Corporate Governance and Expected Stock Returns: Evidence from Germany," European Financial Management, European Financial Management Association, vol. 10(2), pages 267-293.
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Citations

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Cited by:
  1. Betzer, André & Gider, Jasmin & Metzger, Daniel & Theissen, Erik, 2011. "Strategic trading and trade reporting by corporate insiders," CFS Working Paper Series 2011/04, Center for Financial Studies (CFS).
  2. Cagdas Tahaoglu & Z. Nuray Guner, 2011. "An Investigation Of Returns To Insider Transactions: Evidence From The Istanbul Stock Exchange," Bogazici Journal of Economics and Administrative Sciences, Bogazici University, Department of Economics, vol. 25(1), pages 57-77.
  3. Kaspar Dardas & Andre Güttler, 2011. "Are directors’ dealings informative? Evidence from European stock markets," Financial Markets and Portfolio Management, Springer, vol. 25(2), pages 111-148, June.
  4. Brajesh Kumar & Ajay Pandey, 2011. "Price Discovery in emerging commodity markets: Spot and Futures relationship in indian commodity Futures market," Bogazici Journal of Economics and Administrative Sciences, Bogazici University, Department of Economics, vol. 25(1), pages 79-121.
  5. Degryse, H.A. & Jong, F.C.J.M. de & Lefebvre, J.J.G., 2009. "An Empirical Analysis of Legal Insider Trading in the Netherlands," Discussion Paper 2009-026, Tilburg University, Tilburg Law and Economic Center.
  6. Madura, Jeff & Marciniak, Marek, 2014. "Bidder country characteristics and informed trading in U.S. targets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 256-284.
  7. Fidrmucova, J. & Goergen, M. & Renneboog, L.D.R., 2005. "Insider Trading, News Releases and Ownership Concentration," Discussion Paper 2005-97, Tilburg University, Center for Economic Research.
  8. : 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.
  9. Tang, Hui-wen & Chen, Anlin & Chang, Chong-Chuo, 2013. "Insider trading, accrual abuse, and corporate governance in emerging markets — Evidence from Taiwan," Pacific-Basin Finance Journal, Elsevier, vol. 24(C), pages 132-155.
  10. Dickgiesser, Sebastian & Kaserer, Christoph, 2008. "Market efficiency reloaded: why insider trades do not reveal exploitable information," CEFS Working Paper Series 2008-04, Center for Entrepreneurial and Financial Studies (CEFS), Technische Universität München.
  11. Van Geyt, Debby & Van Cauwenberge, Philippe & Vander Bauwhede, Heidi, 2014. "Does high-quality corporate communication reduce insider trading profitability?," International Review of Law and Economics, Elsevier, vol. 37(C), pages 1-14.

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