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Can insiders bail themselves out before private renegotiation?
Author(s) -
YurAustin Jasmine
Publication year - 1998
Publication title -
review of financial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.347
H-Index - 41
eISSN - 1873-5924
pISSN - 1058-3300
DOI - 10.1016/s1058-3300(99)80154-2
Subject(s) - insider trading , insider , business , sample (material) , stock (firearms) , private information retrieval , monetary economics , stock price , outcome (game theory) , inside information , finance , economics , microeconomics , computer security , mechanical engineering , paleontology , chemistry , chromatography , series (stratigraphy) , political science , computer science , law , biology , engineering
This study examines insider trading for a sample of firms that announce a workout agreement, controlling for both successful and unsuccessful workout attempts. I find that insider trading activity is related to the outcome of the workout proposal. Managers tend to bail out (sell shares) of firms that are unsuccessful in the workout process while they purchase shares prior to the workout announcements if the firms are ultimately successful in their workout. In addition, the evidence suggests managerial trading behavior is related to the workout market reaction. When a workout announcement is preceded by insider buying (selling), the stock price reaction is positive (negative). Overall, the evidence presented in this article is consistent with the notion that insider transactions convey private information to the stock market about a financially distressed firm.