Do Insiders Get Abnormal Returns?: Event Studies on the Trades of Insiders of the Firms with Differentiated Corporate Governance of the São Paulo Stock Exchange

Júnior, William Eid; Rochman, Ricardo Ratner

doi:10.2139/ssrn.1435295

Cited by 2 publications

(1 citation statement)

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“…The stock exchange of Brazil, BM&FBOVESPA, became the 10th biggest stock exchange in the world in terms of total market capitalisation at the end of 2009. 4 In a country where corruption is culturally acceptable (De Medeiros, 2009), impending merger deals are often poorly held secrets and insider dealings are frequent and profitable (Rochman & Eid, 2006). In the takeover of Ipiranga Group in 2007, for example, the firm's stock price increased by 56% in the five days leading up to the official merger announcement.…”

Section: Introductionmentioning

confidence: 99%

Merger Announcement Effects and the Amendment of Insider Trading Laws in Brazil

Qiu¹,

Balbinotti²

2016

JMAA

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Although Brazil has a long history of having insider trading laws (IT laws) in place and became the first emerging country to enforce the IT laws (Bhattacharya & Daouk, 2002), criminal sanctions and hefty monetary penalties were only made possible by the amendment of its laws against IT on October 31, 2001. We study the stock price effects of merger announcements made by 151 firms over two periods, before and after the change of IT laws. Our empirical results suggest that target firms attained positive price run-ups in pre-announcement windows before, but not after, the legal regime change. While acquiring firms had strong positive pre-announcement reactions in both legal regimes, the abnormal returns (AR) decreased in the more stringent legal regime. These results indicate that more stringent IT laws may deter IT and improve market efficiency in an emerging country.

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Section: Introductionmentioning

confidence: 99%