Do corporate insiders circumvent insider trading regulations? The case of stock repurchases

  • R. Richardson Pettit
  • Yulong Ma
  • Jia He


We use calculated values of standardized abnormal insider trading activity to investigate for patterns of unusual insider activity around fixed-price and Dutch auction repurchase announcements. Firms are classified according to whether the repurchase is signaling information about future cash flows, about the distribution of excess free cash flows, or about management's attempts to maintain control in the presence of a takeover. We find below normal levels of sales well before the event and above normal levels of sales after the event. This tendency is strongest for fixed-price offers and for firm's conveying information about future cash flows, and is absent for firms involved in takeovers. No evidence exists of abnormal levels of purchases before or after the event. We interpret the evidence as consistent with insiders successfully circumventing policies and regulations designed to prevent the exploitation of private information by timing the pattern of their security sales.

Key words

insider trading fixed-price repurchase announcements Dutch auction repurchase announcements 


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Copyright information

© Kluwer Academic Publishers 1996

Authors and Affiliations

  • R. Richardson Pettit
    • 1
  • Yulong Ma
    • 2
  • Jia He
    • 3
  1. 1.University of HoustonHoustonUSA
  2. 2.Alabama A&M UniversityNormalUSA
  3. 3.University of HoustonHoustonUSA

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