Insider Trading and the Classification of Seasoned Equity Offerings: Evidence from Taiwan

Abstract

This paper investigates whether insider purchasing or selling before Season equity offerings (SEO) announcement have the impact on the cumulative abnormal returns (CAR) around SEO announcement in Taiwan. We find that there are negative announcement effects around the SEO announcement, which is not consistent with the argument that there are usually positive announcement effects around the SEO announcement in Taiwan. Moreover, long-run abnormal returns following SEOs are negative. Therefore, the motivation of SEO has changed from investment to overvaluation.. Although there is net buying prior to SEO announcement, the outside investors still regard SEO announcement as a signal of overvaluation instead of growth potential.

The short-run performance of equity issues in South Africa: Bad timing or a last resort?

“…Jung et al (1996) found evidence that firms with inferior managerial ownership, who are arguably more susceptible to the agency problems described above, have more negative price reactions to announcing the issue of new shares. Huang and Chiu (2017) considered the impact of insider trading on SEO performance for the Taiwanese market and found that insider trading leads to overvaluation of SEO announcing firms, leading to negative abnormal returns after the announcement. In other words, the SEO announcement signals overvaluation of the firm rather than growth potential.…”