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Should Insider Trading be Prohibited when Share Repurchases are Allowed?

  • Andrea Buffa
  • Giovanna Nicodano

This paper considers share repurchases as the way long-term shareholders preserve their ability to use corporate information for speculative purposes when insider trading regulation is enforced. This use of corporate information increases the adverse selection losses of short-term shareholders. Thus, buy-back programs reduce their incentive to invest in stocks that back the most productive technology, leading to a socially inefficient equilibrium. It follows that insider trading should not be banned when share repurchases are allowed.

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File URL: http://www.carloalberto.org/assets/working-papers/no.16.pdf
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Paper provided by Collegio Carlo Alberto in its series Carlo Alberto Notebooks with number 16.

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Length: 29 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:cca:wpaper:16
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  29. Brockman, Paul & Chung, Dennis Y., 2001. "Managerial timing and corporate liquidity: *1: evidence from actual share repurchases," Journal of Financial Economics, Elsevier, vol. 61(3), pages 417-448, September.
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