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Insider trading and corporate governance: The case of Germany

  • Betzer, André
  • Theissen, Erik

We analyze transactions by corporate insiders in Germany. We find that insider trades are associated with significant abnormal returns. Insider trades that occur prior to an earnings announcement have a larger impact on prices. This result provides a rationale for the UK regulation that prohibits insiders from trading prior to earnings announcements. Both the ownership structure and the accounting standards used by the firm affect the magnitude of the price reaction. The position of the insider within the firm has no effect, which is inconsistent with the informational hierarchy hypothesis.

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Paper provided by University of Cologne, Centre for Financial Research (CFR) in its series CFR Working Papers with number 07-07.

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Date of creation: 2007
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Handle: RePEc:zbw:cfrwps:0707
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  1. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert W., 1998. "Law and Finance," Scholarly Articles 3451310, Harvard University Department of Economics.
  2. Lakonishok, Josef & Lee, Inmoo, 2001. "Are Insider Trades Informative?," Review of Financial Studies, Society for Financial Studies, vol. 14(1), pages 79-111.
  3. Seyhun, H. Nejat, 1986. "Insiders' profits, costs of trading, and market efficiency," Journal of Financial Economics, Elsevier, vol. 16(2), pages 189-212, June.
  4. Boehmer, Ekkehart & Masumeci, Jim & Poulsen, Annette B., 1991. "Event-study methodology under conditions of event-induced variance," Journal of Financial Economics, Elsevier, vol. 30(2), pages 253-272, December.
  5. 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.
  6. Finnerty, Joseph E, 1976. "Insiders and Market Efficiency," Journal of Finance, American Finance Association, vol. 31(4), pages 1141-48, September.
  7. Sylvain Friederich & Alan Gregory & John Matatko & Ian Tonks, 2002. "Short-run Returns around the Trades of Corporate Insiders on the London Stock Exchange," European Financial Management, European Financial Management Association, vol. 8(1), pages 7-30.
  8. Campbell, Cynthia J. & Wesley, Charles E., 1993. "Measuring security price performance using daily NASDAQ returns," Journal of Financial Economics, Elsevier, vol. 33(1), pages 73-92, February.
  9. Corrado, Charles J., 1989. "A nonparametric test for abnormal security-price performance in event studies," Journal of Financial Economics, Elsevier, vol. 23(2), pages 385-395, August.
  10. B. Espen Eckbo & David C. Smith, 1998. "The Conditional Performance of Insider Trades," Journal of Finance, American Finance Association, vol. 53(2), pages 467-498, 04.
  11. Wolfgang Drobetz & Andreas Schillhofer & Heinz Zimmermann, 2004. "Corporate Governance and Expected Stock Returns: Evidence from Germany," European Financial Management, European Financial Management Association, vol. 10(2), pages 267-293.
  12. Jaffe, Jeffrey F, 1974. "Special Information and Insider Trading," The Journal of Business, University of Chicago Press, vol. 47(3), pages 410-28, July.
  13. Arturo Bris, 2005. "Do Insider Trading Laws Work?," European Financial Management, European Financial Management Association, vol. 11(3), pages 267-312.
  14. Emanuele Bajo & Barbara Petracci, 2006. "Do what insiders do: Abnormal performances after the release of insiders' relevant transactions," Studies in Economics and Finance, Emerald Group Publishing, vol. 23(2), pages 94-118, June.
  15. Arturo Bris, 2000. "Do Insider Trading Laws Work?," Yale School of Management Working Papers ysm162, Yale School of Management, revised 01 Jun 2005.
  16. Heiss, Florian & Köke, Jens, 2001. "Dynamics in ownership and firm survival: evidence from corporate Germany," ZEW Discussion Papers 01-63, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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