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UK Directors Trading: The Impact of Dealings in Smaller Firms

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  • John Matatko
  • Alan Gregory
  • Ian Tonks

    ()

  • Richard Purkis

Abstract

This paper reassesses the UK results of significant abnormal returns from directors trading for a new sample of directors trades 1984-1988, and finds that abnormal returns tend to be concentrated in smaller firms. When an appropriate benchmark portfolio is used, it is found that the significance of the abnormal returns is substantially reduced. The implication is that after allowing for a size effect, directors trading does not yield particularly high profits to either the directors themselves or to any outside investors mimicking those directors trades.

Suggested Citation

  • John Matatko & Alan Gregory & Ian Tonks & Richard Purkis, 1993. "UK Directors Trading: The Impact of Dealings in Smaller Firms," FMG Discussion Papers dp160, Financial Markets Group.
  • Handle: RePEc:fmg:fmgdps:dp160
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    File URL: http://www.lse.ac.uk/fmg/workingPapers/discussionPapers/fmg_pdfs/dp160.pdf
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    Cited by:

    1. Jana P. Fidrmuc & Marc Goergen & Luc Renneboog, 2006. "Insider Trading, News Releases, and Ownership Concentration," Journal of Finance, American Finance Association, vol. 61(6), pages 2931-2973, December.
    2. Kyriacos Kyriacou & Bryan Mase, 2006. "The Adverse Consequences of Share-Based Pay in Risky Companies," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 10(3), pages 307-323, September.
    3. Olaf Stotz, 2006. "Germany's New Insider Law: The Empirical Evidence after the First Year," German Economic Review, Verein für Socialpolitik, vol. 7, pages 449-462, November.
    4. Julan Du & Shang-Jin Wei, 2004. "Does Insider Trading Raise Market Volatility?," Economic Journal, Royal Economic Society, vol. 114(498), pages 916-942, October.
    5. Connelly, J. Thomas & Limpaphayom, Piman & Nagarajan, Nandu J., 2012. "Form versus substance: The effect of ownership structure and corporate governance on firm value in Thailand," Journal of Banking & Finance, Elsevier, vol. 36(6), pages 1722-1743.
    6. Bruce Burton & A. Alasdair Lonie & David Power, 2003. "Insider trading, growth opportunities and the market reaction to new financing announcements," The European Journal of Finance, Taylor & Francis Journals, vol. 9(4), pages 301-322.
    7. Katherine Uylangco & Steve Easton & Robert Faff, 2010. "The equity and efficiency of the Australian share market with respect to director trading," Accounting Research Journal, Emerald Group Publishing, vol. 23(1), pages 5-19, July.
    8. Madura, Jeff & Marciniak, Marek, 2014. "Bidder country characteristics and informed trading in U.S. targets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 256-284.
    9. Ian Tonks, 2010. ""Discussion of" To Trade or Not To Trade: The Strategic Trading of Insiders around News Announcements," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(3-4), pages 408-421.
    10. Andreas Zingg & Sebastian Lang & Daniela Wyttenbach, 2007. "Insider Trading in the Swiss Stock Market," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 143(III), pages 331-362, September.
    11. Nadia Linciano, 2003. "The Effectiveness of Insider Trading Regulation in Italy. Evidence from Stock-Price Run-Ups Around Announcements of Corporate Control Transactions," European Journal of Law and Economics, Springer, vol. 16(2), pages 199-218, September.
    12. Michael Firth & T. Y. Leung & Oliver M. Rui, 2009. "Insider Trading in Hong Kong: Tests of Stock Returns and Trading Frequency," Working Papers 042009, Hong Kong Institute for Monetary Research.
    13. Adriana Korczak & Piotr Korczak & Meziane Lasfer, 2010. "To Trade or Not to Trade: The Strategic Trading of Insiders around News Announcements," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(3-4), pages 369-407.
    14. Lambe, Brendan J., 2016. "An unreliable canary: Insider trading, the cash flow hypothesis and the financial crisis," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 151-158.
    15. André Betzer & Erik Theissen, 2010. "Sooner or Later: An Analysis of the Delays in Insider Trading Reporting," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(1-2), pages 130-147.
    16. Rose, Caspar, 2003. "Impact of investor meetings/presentations on share prices, insider trading and securities regulation," International Review of Law and Economics, Elsevier, vol. 23(3), pages 227-236, September.
    17. Goergen, M. & Renneboog, L.D.R. & Zhang, C., 2008. "Do UK Institutional Shareholders Monitor their Investee Firms?," Discussion Paper 2008-38, Tilburg University, Center for Economic Research.
    18. Philip Hamill & Philip McIlkenny & Kwaku Opong, 2002. "Directors' Share Dealings and Company Financial Performance," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 6(3), pages 215-234, September.

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