Junior‐for‐senior announcements

In this paper, the field of corporate governance in the US from the perspective of financial economists is reviewed. It begins with a discussion of the fundamental agency problem from which that field emanates, which is the separation between the owners (the shareholders) and the controllers (the managers) of the modern public corporation. Relying primarily on survey papers, the current evidence on the various mechanisms that have been proposed as potential solutions to this agency problem is then reviewed. The contributions made by the other three papers that comprise this Special Issue on Corporate Governance are also highlighted. Finally, suggestions—my own and those of others—regarding the direction of future corporate governance research are offered.

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Insider signaling and seasoned equity offerings

Hull

Kwak

Walker

2010

Managerial Finance

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PurposeThe purpose of this paper is to examine the impact of insider ownership decreases on stock returns for firms undergoing seasoned equity offerings (SEOs).Design/methodology/approachInsider data were gathered for firms undergoing SEOs and this information used to compute the insider ownership percentage decreases caused by the SEOs. These insider percentage decreases and standard compounded abnormal return methodology were used to test signaling theory.FindingsIt was discovered that the short‐run and long‐run stock returns accompanying SEOs are not consistent with what signaling theory predicts. In particular, for greater decreases in insider ownership percentages, a superior market response for both short‐run tests and long‐run post‐SEO tests was often found.Research limitations/implicationsPrior research has not examined how the change in insider ownership caused by a corporate event influences stock returns. Future research can build on the univariate tests by examining the impact of insider ownership within a multivariate framework.Practical implicationsInvestors cannot profit by following the behavior of insiders by selling shares in companies where insiders lower their ownership percentages. This is because insiders appear to have personal agendas that they follow when decreasing their holdings.Originality/valueThis is the first study to examine how changes in insider ownership caused by a significant corporate event affect stock returns. The findings of this empirical examination challenge signaling theory as regards insider knowledge, the ability of insiders to convey their privileged knowledge (if it exists), and the capacity of outsiders to decipher and act on insider actions.

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Junior‐for‐senior announcements

Cited by 6 publications

References 25 publications

Explanation for market response to seasoned equity offerings

Explanation for market response to seasoned equity offerings

Twenty‐five years of corporate governance research … and counting

Insider signaling and seasoned equity offerings

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