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The information content of director trading: Evidence from acquisition announcements in Australia

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  • Hossain, Md Mosharraf
  • Heaney, Richard
  • Yu, Jing

Abstract

In response to the long-standing debate about the information content of director trading, this study investigates the implications of director stock trading before an acquisition announcement by the company. Using a sample of 1249 acquisition announcements made by Australian acquiring firms between 2003 and 2012, we find that the stocks of acquiring firms with net director sales tend to underperform those of acquiring firms with net director purchases or with no director trades. This evidence supports the notion that director trading conveys useful information about the quality of subsequent acquisitions. Further, the informational effect of net director sales is most pronounced for acquisitions where the method of payment is stock, implying that the acquiring firm's stock may be overvalued.

Suggested Citation

  • Hossain, Md Mosharraf & Heaney, Richard & Yu, Jing, 2020. "The information content of director trading: Evidence from acquisition announcements in Australia," Global Finance Journal, Elsevier, vol. 44(C).
    • Handle: RePEc:eee:glofin:v:44:y:2020:i:c:s1044028318300942
    DOI: 10.1016/j.gfj.2018.09.001
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    Cited by:

    1. Hossain, Md Mosharraf & Pham, Man Duy (Marty) & Islam, Nahid, 2021. "The performance and motivation of serial acquisitions: Evidence from Australia," International Review of Financial Analysis, Elsevier, vol. 77(C).

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    More about this item

    Keywords

    Director trading; Mergers and acquisitions;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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