Insider Trading and Corporate Governance: The Case of Germany

André Betzer · Erik Theissen

147 citations0/0 files storedEuropean Financial Management

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Financial Markets and Investment Strategies Corporate Finance and Governance Securities Regulation and Market Practices

Abstract

Abstract We analyse transactions by corporate insiders in Germany. We find that insider trades are associated with significant abnormal returns. Insider trades that occur prior to an earnings announcement have a larger impact on prices. This result provides a rationale for the UK regulation that prohibits insiders from trading prior to earnings announcements. Both the ownership structure and the accounting standards used by the firm affect the magnitude of the price reaction. The position of the insider within the firm has no effect, which is inconsistent with the informational hierarchy hypothesis.

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References

1998Law and Finance 1991Event-study methodology under conditions of event-induced variance 1974Special Information and Insider Trading 2001Are Insider Trades Informative?1986Insiders' profits, costs of trading, and market efficiency 1989A nonparametric test for abnormal security-price performance in event studies 1976INSIDERS AND MARKET EFFICIENCY 2004Corporate Governance and Expected Stock Returns: Evidence from Germany

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2015Asymmetric Information and Corporate Social Responsibility 2017Insider-trading, discretionary accruals and information asymmetry 2014Ownership Structure and Insider Trading: Evidence from China 2013The Returns to Hedge Fund Activism in Germany 2012Why does shareholder protection matter for abnormal returns after reported insider purchases and sales?2013Corporate Governance Rules and Insider Trading Profits

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