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Insider Trading and the Value of the Firm

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  • Masson, Robert T
  • Madhavan, Ananth

Abstract

Previous studies of insider trading have examined the profitability to executives of their stock trading with a view to evaluating the informational efficiency of securities markets. The authors examine empirically whether insider trading raises or lowers firm value. To correctly identify the effects on firm value at the margin, they correct for the simultaneity of earnings, insider holdings, and the amount of insider trading. The authors explicitly deal with simultaneity by using a two-part testing procedure. Their results suggest that insider trading lowers the value of the firm at the margin, but that greater executive stock ownership raises the value. Copyright 1991 by Blackwell Publishing Ltd.

Suggested Citation

  • Masson, Robert T & Madhavan, Ananth, 1991. "Insider Trading and the Value of the Firm," Journal of Industrial Economics, Wiley Blackwell, vol. 39(4), pages 333-353, June.
    • Handle: RePEc:bla:jindec:v:39:y:1991:i:4:p:333-53
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    Cited by:

    1. Akram Khalilov & Beatriz Garcia Osma, 2020. "Accounting conservatism and the profitability of corporate insiders," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 47(3-4), pages 333-364, March.
    2. Poitras, Geoffrey, 1994. "Shareholder wealth maximization, business ethics and social responsibility," MPRA Paper 113221, University Library of Munich, Germany.
    3. Laura Beny, 2006. "Do Investors Value Insider Trading Laws? International Evidence," William Davidson Institute Working Papers Series wp837, William Davidson Institute at the University of Michigan.
    4. Brodmann, Jennifer & Unsal, Omer & Hassan, M. Kabir, 2019. "Political lobbying, insider trading, and CEO compensation," International Review of Economics & Finance, Elsevier, vol. 59(C), pages 548-565.
    5. Te Bao & Edward Halim & Charles N. Noussair & Yohanes E. Riyanto, 2021. "Managerial incentives and stock price dynamics: an experimental approach," Experimental Economics, Springer;Economic Science Association, vol. 24(2), pages 617-648, June.
    6. Li, Xiao, 2020. "The impact of economic policy uncertainty on insider trades: A cross-country analysis," Journal of Business Research, Elsevier, vol. 119(C), pages 41-57.

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