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Insider Trading, Option Exercises and Private Benefits of Control

Listed author(s):
  • Peter Cziraki

    ()

    (PhD candidate, Department of Finance, Tilburg University)

  • Prof. Dr. Luc Renneboog

    ()

    (Department of Finance, Tilburg University)

  • Peter de Goeij

    ()

    (Department of Finance, Tilburg University)

We investigate patterns of abnormal stock performance around insider trades and option exercises on the Dutch market. Listed firms in the Netherlands have a long tradition of employing many anti-shareholder mechanisms limiting shareholders rights. Our results imply that insider transactions are more profitable at firms where shareholder rights are not restricted by antishareholder mechanisms. This finding goes against the monitoring hypothesis which states that more shareholder orientation and stronger blockholders would reduce the gains from insider trading. We show robust support for the substitution hypothesis as insiders of firms which effectively curtail shareholder rights enjoy valuable private benefits of control in lieu of engaging in insider trading to exploit their position.

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Paper provided by Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences in its series IEHAS Discussion Papers with number 1006.

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Length: 63 pages
Date of creation: Mar 2010
Handle: RePEc:has:discpr:1006
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