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What Do Insiders Know? Evidence from Insider Trading Around Share Repurchases and SEOs

Author

Listed:
  • Peter Cziraki

    (University of Toronto - Department of Economics; Tilburg Law and Economics Center (TILEC))

  • Evgeny Lyandres

    (Boston University)

  • Roni Michaely

    (University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute)

Abstract

We examine the nature of information contained in insider trades prior to corporate events. Insiders’ net buying increases before open market share repurchase announcements and decreases before SEOs. Higher insider net buying is associated with better post-event operating performance, a reduction in undervaluation, and, for repurchases, lower post-event cost of capital. Insider trading predicts announcement returns and, for repurchases, the long-term drift following events. Overall, our results suggest that insider trades before corporate events contain information about changes both in fundamentals and in investor sentiment. Information about fundamentals is incorporated slowly into prices, while information about mispricing is incorporated faster.

Suggested Citation

  • Peter Cziraki & Evgeny Lyandres & Roni Michaely, 2019. "What Do Insiders Know? Evidence from Insider Trading Around Share Repurchases and SEOs," Swiss Finance Institute Research Paper Series 19-11, Swiss Finance Institute, revised Mar 2019.
    • Handle: RePEc:chf:rpseri:rp1911
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    Cited by:

    1. Jin, Han & Mazouz, Khelifa & Wu, Yuliang & Xu, Bin, 2023. "Can star analysts make superior coverage decisions in poor information environment?," Journal of Banking & Finance, Elsevier, vol. 146(C).
    2. Suk, Inho & Wang, Mengmeng, 2021. "Does target firm insider trading signal the target's synergy potential in mergers and acquisitions?," Journal of Financial Economics, Elsevier, vol. 142(3), pages 1155-1185.
    3. Dittmann, Ingolf & Li, Amy Yazhu & Obernberger, Stefan & Zheng, Jiaqi (Jacky), 2025. "Equity-based compensation and the timing of share repurchases: the role of the corporate calendar," Journal of Accounting and Economics, Elsevier, vol. 80(1).
    4. Mansoor Afzali & Minna Martikainen, 2021. "Network centrality and value relevance of insider trading: Evidence from Europe," The Financial Review, Eastern Finance Association, vol. 56(4), pages 793-819, November.
    5. Meziane Lasfer & Xiaoke Ye, 2024. "Corporate insiders’ exploitation of investors’ anchoring bias at the 52‐week high and low," The Financial Review, Eastern Finance Association, vol. 59(2), pages 391-432, May.
    6. Te Bao & Edward Halim & Charles N. Noussair & Yohanes E. Riyanto, 2021. "Correction: Managerial incentives and stock price dynamics: an experimental approach," Experimental Economics, Springer;Economic Science Association, vol. 24(2), pages 649-649, June.
    7. Jennifer L. Brown & G. Ryan Huston & Brian S. Wenzel, 2024. "The gift that keeps on giving: stock returns around CEO stock gifts to family members," Review of Accounting Studies, Springer, vol. 29(2), pages 1904-1947, June.
    8. Hutton, Irena & Knill, April M. & Zutter, Chad J., 2021. "25 years and counting of corporate finance: What have we learned and where are we going?," Journal of Corporate Finance, Elsevier, vol. 66(C).
    9. Gyoshev, Stanley B. & Kaplan, Todd R. & Szewczyk, Samuel H. & Tsetsekos, George P., 2021. "Why do investment banks buy put options from companies?," Journal of Corporate Finance, Elsevier, vol. 67(C).
    10. Han‐Ching Huang & Pei‐Shan Tung, 2021. "Information content of insider filings after stock repurchase and seasoned equity issue announcements," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 2690-2712, April.
    11. Feng, Yitian, 2023. "Do listed companies fulfill their public commitments? Evidence from the stake-raising commitments of Chinese companies," Pacific-Basin Finance Journal, Elsevier, vol. 77(C).
    12. Shuo Wang & Liyi Zheng, 2023. "Whose opinion matters when insiders disagree with short sellers?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 50(9-10), pages 1527-1571, October.
    13. Avijit Bansal & Balagopal Gopalakrishnan & Joshy Jacob & Pranjal Srivastava, 2022. "Impact of operational fragility on stock returns: Lessons from COVID‐19 crisis," International Review of Finance, International Review of Finance Ltd., vol. 22(2), pages 365-398, June.
    14. Ingolf Dittmann & Amy Yazhu Li & Stefan Obernberger & Jiaqi Zheng, 2022. "The corporate calendar and the timing of share repurchases and equity compensation," Tinbergen Institute Discussion Papers 21-101/IV, Tinbergen Institute.
    15. Jeon, Byounghyun & Sulaeman, Johan, 2024. "Corporate insider purchases and the options market: Competition among informed investors," Journal of Corporate Finance, Elsevier, vol. 87(C).
    16. Millicent Chang & John Gould & Yuyun Huang & Sirimon Treepongkaruna & Joey Wenling Yang, 2022. "Insider trading and the algorithmic trading environment," International Review of Finance, International Review of Finance Ltd., vol. 22(4), pages 725-750, December.
    17. Zhang, Yun & Liu, Yun & Tang, Yicheng & Gao, Qun, 2024. "Large shareholders' stock selling and corporate performance: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 86(C).
    18. Chen, Ni-Yun & Liu, Chi-Chun, 2023. "The impact of share repurchases on equity finance and performance," The Quarterly Review of Economics and Finance, Elsevier, vol. 91(C), pages 198-212.
    19. Ebrahim Bazrafshan, 2023. "Implications of Internal Funds Surplus for Determining Agency Spending of SEO Proceeds and Timing Incentives," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 32(4), pages 133-169, November.
    20. Steinberg, Nadav & Wohl, Avi, 2024. "Market timing in open market bond repurchases," Journal of Banking & Finance, Elsevier, vol. 161(C).
    21. Malik, Ihtisham A. & Hodgson, Allan & Faff, Robert W. & Xiong, Zhengling, 2025. "Corporate insider trading and extreme weather events: Evidence from tropical storms in the US," International Review of Financial Analysis, Elsevier, vol. 104(PA).
    22. 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.

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    Keywords

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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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