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Open-market stock repurchases, insider trading, and price informativeness

Author

Listed:
  • Gow-Cheng Huang

    (Tuskegee University)

  • Kartono Liano

    (Mississippi State University)

  • Ming-Shiun Pan

    (Shippensburg University)

Abstract

This study examines insider buying before stock repurchase announcements as an undervaluation signal. We find that firms are more likely to announce a repurchase program when insiders purchase shares, particularly when purchases are made by top executives. Moreover, the effect of insider purchases on announcing a stock repurchase program is more pronounced when stock prices convey more information that is new to managers. We find that insider purchases, particularly purchases by CEOs and CFOs, are positively associated with the market reaction to the share repurchase announcements. Furthermore, investors pay more attention to purchases by CEOs and CFOs when stock prices are less informative. Finally, we find similar results for the relation between insider purchases and post-announcement stock returns.

Suggested Citation

  • Gow-Cheng Huang & Kartono Liano & Ming-Shiun Pan, 2023. "Open-market stock repurchases, insider trading, and price informativeness," Review of Quantitative Finance and Accounting, Springer, vol. 60(4), pages 1495-1513, May.
    • Handle: RePEc:kap:rqfnac:v:60:y:2023:i:4:d:10.1007_s11156-023-01142-7
    DOI: 10.1007/s11156-023-01142-7
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    References listed on IDEAS

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    More about this item

    Keywords

    Stock repurchase; Insider trading; Stock price informativeness; Undervaluation signal;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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