Sunday, Jan. 7, 2018 10:15 AM - 12:15 PM
- Chair: Jean-Noel Barrot, Massachusetts Institute of Technology
What Do Insiders Know? Evidence From Insider Trading Around Share Repurchases and SEOs
AbstractWe examine the nature of information contained in insider trades prior to corporate events. Insiders’ net buying increases before open market share repurchase announcements and decreases before SEOs. Higher insider net buying is associated with better post-event operating performance, a reduction in undervaluation, and, for repurchases, lower post-event cost of capital. Insider trading predicts announcement returns and, for repurchases, the long-term drift following events. Overall, our results suggest that insider trades before corporate events contain information about changes both in fundamentals and in investor sentiment. Information about fundamentals is incorporated slowly into prices, while information about mispricing is incorporated faster.
Optimal Issuance Under Information Asymmetry and Accumulation of Cash Flows
AbstractWe study the optimal timing of security issuance to finance a new project when the firm’s assets in place have unobservable quality. Stochastic cash flows generated by assets in place reveal information about their quality and simultaneously reduce the required outside funding. A high-quality firm optimally delays issuance unless its accumulated cash or the market belief about its quality is sufficiently high. A low- quality firm does the same and, additionally, issues if market belief and accumulated cash are sufficiently low. Under stated restrictions, the renegotiation-proof optimal security pays outside investors in full before paying anything to original shareholders.
Key Investors in IPOs
AbstractWe statistically identify institutional investors who persistently hold US IPOs with high initial returns. As a group, these key investors' holdings are strongly related to initial returns and offer price revisions, more so than any other variables. Key investors are better informed than other investors; their trades predict future returns and their participation more strongly relates to initial returns when they specialize in the IPO rm's industry. Instrumenting investor participation with pre-IPO information we show that investors' industry specializations and their underwriter relationships, predict initial returns.
- G3 - Corporate Finance and Governance