The objective of my two essays together is to examine whether the trades made by the insiders prior to open market repurchase (OMR) announcements contain information that can be used to identify the repurchases that are motivated by undervaluation. The existing literature on shares repurchases suggests that while undervaluation has been a dominant motive behind repurchases for past few decades, identifying these undervalued firms still remains a challenge. The book-to-market ratio is commonly used as a proxy for mispricing; however, its ability to identify undervalued repurchasing firms has recently come into doubt (Chan et al., 2004). Instead, I propose using proxies based on insider trading to identify the undervalued repurchasing firms.
In the first essay, I document a relation between insider trading and both the short- and long-run stock returns of open market repurchasing firms. My findings suggest that the personal trades made by insiders prior to the OMR announcements contain information that can be used to identify undervalued repurchasing firms. I use various measures of insider trading and show that firms with high (low) insider buying (selling) prior to repurchase announcements earn abnormal stock returns in both the short- and long-run. I also find a positive (negative) relation between insider buying (selling) and the actual repurchasing activity of the firms.
In my second essay, I further test whether the trades made by insiders prior to OMR announcements contain information that can be used to identify the repurchases that are motivated by undervaluation by examining the post-announcement operating performance. I find a relation between insider trading and the post-announcement operating performance for the OMR firms that is consistent with the hypothesis that insiders' trades prior to OMR announcements are informative. Specifically, I find that firms with high insider buying prior to the OMR announcements outperform their corresponding control firms, whereas, firms with low insider buying do not. In addition, I test for a relation between insider trading and (a) the accruals management around OMR announcements, and (b) the market reaction to the earnings announcements made by the OMR firms. I find a weak evidence of insiders timing their trades along with accruals management. However, the market reaction to earnings announcements made by the OMR firms does not seem to vary with level of insider trading. Overall, the evidence is consistent with insiders of repurchasing firms knowing when their stocks are undervalued and they timing both their personal and firm level trades accordingly.
|Advisor:||Kahle, Kathleen M.|
|Commitee:||Kelley, Eric K., Klasa, Sandy J., Oaxaca, Ronald L.|
|School:||The University of Arizona|
|School Location:||United States -- Arizona|
|Source:||DAI-A 70/04, Dissertation Abstracts International|
|Keywords:||Insider trading, Share buyback, Share repurchases, Stock buyback, Stock repurchase|
Copyright in each Dissertation and Thesis is retained by the author. All Rights Reserved
The supplemental file or files you are about to download were provided to ProQuest by the author as part of a
dissertation or thesis. The supplemental files are provided "AS IS" without warranty. ProQuest is not responsible for the
content, format or impact on the supplemental file(s) on our system. in some cases, the file type may be unknown or
may be a .exe file. We recommend caution as you open such files.
Copyright of the original materials contained in the supplemental file is retained by the author and your access to the
supplemental files is subject to the ProQuest Terms and Conditions of use.
Depending on the size of the file(s) you are downloading, the system may take some time to download them. Please be