Why does shareholder protection matter for abnormal returns after reported insider purchases and sales?

Fidrmuc, Jana P.; Korczak, Adriana; Korczak, Piotr

doi:10.1016/j.jbankfin.2012.06.019

Cited by 46 publications

(73 citation statements)

References 51 publications

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“…However, even if designed at the country‐level, governance transparency targets firm‐level agency costs, consistent with Firdmuc et al. () and Gebka et al. ().…”

Section: Introductionsupporting

confidence: 78%

“…Country‐level evidence is sparser. Fidrmuc, Korczak, and Korczak () document a positive (negative) association between investor protection and the informativeness of insider purchases (sales) in a cross‐country panel, while Gebka et al. () find that insider trading is more profitable in European countries with stronger investor protection and enforced regulatory rules.…”

Section: Introductionmentioning

confidence: 99%

“…Fidrmuc et al. () and Gebka et al. () find that insider purchases (sales) are more (less) informative at the firm level in countries with greater shareholder protection.…”

Section: Introductionmentioning

confidence: 99%

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Aggregate insider trading and market returns: The role of transparency

Brochet

2018

Business Fin & Account

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Using a sample of countries that require timely disclosures of insider trades, I investigate the effect of country-level institutions that promote transparency on the extent to which aggregate insider trades predict market returns. I find that financial information transparency mitigates the predictive content of aggregate insider trades when markets are more likely to deviate from fundamentals (i.e., during market fads), and when there is greater co-movement in stock prices.In contrast, there is some evidence that governance and investor protection mitigate the association between aggregate insider trades and future earnings surprises. Hence, holding constant the timely disclosures of insider trades, other capital market institutions play complementary roles in mitigating the informational frictions that give rise to the predictive content of aggregate insider trades.

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“…However, even if designed at the country‐level, governance transparency targets firm‐level agency costs, consistent with Firdmuc et al. () and Gebka et al. ().…”

Section: Introductionsupporting

confidence: 78%

Section: Introductionmentioning

confidence: 99%

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Aggregate insider trading and market returns: The role of transparency

Brochet

2018

Business Fin & Account

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“…in the home country of the target firm capture indirect state involvement in corporate governance through legal institutions aimed at preventing unfair related-party transactions in corporations. Consistent with previous studies(Bennedsen & Nielsen, 2010;Fidrmuc, Korczak, & Korczak, 2013;Gupta, Prakash, & Rangan, 2013), it was measured via the "ex-ante control of self-dealing transactions" index developed byDjankov et al …”

mentioning

confidence: 83%

Does state ownership hurt or help minority shareholders? International evidence from control block acquisitions

Heugens

Sauerwald

Turturea

et al. 2019

Global Strategy Journal

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Research Summary We argue that state ownership is a crucial policy instrument for alleviating what is perhaps the most important principal–principal (PP) agency problem around the globe: private benefits of control (PBC). Our results illustrate that states reduce PBC in the companies in which they acquire controlling ownership positions. We also examine how legal and political institutions influence the extent to which states accomplish this goal. Antiself‐dealing legal regulations make states more effective in their efforts to constrain PBC, while political constraints make them less effective. Regimes with high state capacity appear not to prioritize PBC reduction. We test and corroborate these ideas in a sample of 1,354 control transactions across 54 countries. Managerial Summary The one‐sided appropriation of wealth by dominant owners is arguably the biggest threat to minority shareholders around the globe. An important question that has thus far remained unaddressed is whether state ownership of firms increases or decreases the extraction of these so‐called PBC. By investigating a large number of transactions involving the transfer of corporate control in 54 countries, we find that state acquirers of controlling ownership positions generally respect minority shareholder rights more than other types of new controlling shareholders. This effect is stronger in countries with strong legal protection of minority shareholders. However, political constraints make it more challenging for state acquirers to keep PBC in check while “strong” states may (mis)use the firms they invest in as policy vehicles.

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“…measured by the anti-self-dealing index of Djankov et al (2008)] and poor corporate governance indicate that large shareholders and corporate managers may extract direct private benefits from their companies or exploit other investors via stock trading on the basis of material and non-public corporate information (see e.g. Fidrmuc et al, 2013). 1 As a result, investors may avoid investments in certain companies when they are unable to limit rent extraction by large shareholders and management (see Frankel and Li 2004).…”

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confidence: 99%

Expected Returns and Idiosyncratic Risk: Industry-Level Evidence from Russia

Kinnunen

Martikainen

2016

Emerging Markets Finance and Trade

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In this paper, we explore a relation between expected returns and idiosyncratic risk. As in many emerging markets, investors in the Russian stock market cannot fully diversify their portfolios due to transaction costs, information gathering and processing costs, and shortcomings in investor protection. This implies that investors demand a premium for idiosyncratic risk-unique asset-specific risk plays a role in investment decisions. We estimate the price of idiosyncratic risk using MIDAS regressions and a cross-section of Russian industry portfolios. We find that idiosyncratic risk commands an economically and statistically significant risk premium. The results remain unaffected after controlling for global pricing factors and short-term return reversal.

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Why does shareholder protection matter for abnormal returns after reported insider purchases and sales?

Cited by 46 publications

References 51 publications

Aggregate insider trading and market returns: The role of transparency

Aggregate insider trading and market returns: The role of transparency

Does state ownership hurt or help minority shareholders? International evidence from control block acquisitions

Expected Returns and Idiosyncratic Risk: Industry-Level Evidence from Russia

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