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Board of directors and insider trading with share repurchase programs

Author

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  • Foued Hamouda
  • Mounira Ben Arab

Abstract

This study examines the relationship between insider trading and board of directors’ characteristics around stock repurchase announcements. It is hypothesized that information disparity between insiders and shareholders from share repurchases announcements creates opportunities for insiders to time their trading. However, there is little evidence on whether board characteristics reduce the probability of insider trading with repurchase announcements. Using data from firms listed on Forbes 500 between 1998 and 2004, we found that insider trading is related to share repurchase announcements. In order to focus on board of directors’ role, we controlled for board characteristics that may change the repurchase decision. Our results provide corroborative evidence of insider net selling around repurchase announcements and the advantages of board characteristics to offset insider trading. In particular, the results suggest that board tenure, directors’ ownership and board directorship change positively insider trading around repurchase announcements. Hence, Securities and Exchange Commission should consider rigorous restrictions on share repurchase announcements and be aware of potential influence of the corporate governance device. Copyright Springer Science+Business Media, LLC. 2013

Suggested Citation

  • Foued Hamouda & Mounira Ben Arab, 2013. "Board of directors and insider trading with share repurchase programs," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 17(2), pages 405-418, May.
    • Handle: RePEc:kap:jmgtgv:v:17:y:2013:i:2:p:405-418
    DOI: 10.1007/s10997-011-9181-6
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    References listed on IDEAS

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    Cited by:

    1. Livnat, Joshua & Smith, Gavin & Suslava, Kate & Tarlie, Martin, 2021. "Board tenure and firm performance," Global Finance Journal, Elsevier, vol. 47(C).
    2. Alquhaif, Abdulsalam & Al-Gamrh, Bakr & Abdul Latif, Rohaida, 2020. "An overview of share buybacks: A descriptive case from Malaysia," Journal of Behavioral and Experimental Finance, Elsevier, vol. 28(C).
    3. Siti Aisyah Ahmad Kamal* & Suhaily Hasnan & Ahmad Fawwaz Mohd Nassaruddin, 2018. "Corporate Governance and Insider Trading: Evidence from Malaysia," The Journal of Social Sciences Research, Academic Research Publishing Group, pages 31-39:2.
    4. Elisa Roncagliolo, 2015. "Managerial discretion in authorising open market share repurchases: empirical evidence from the Italian context," FINANCIAL REPORTING, FrancoAngeli Editore, vol. 2015(2), pages 95-116.

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    More about this item

    Keywords

    Insider trading; Share repurchases; Board of directors; G34; G35;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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