Executive Stock Option Exercise, Insider Trading, and Abnormal Stock Returns

ABSTRACT We find evidence that investors misprice information contained in book-tax differences (BTDs), measured as the ratio of taxable income to book income, TI/BI. Low TI/BI predicts worse earnings growth and abnormal stock returns than high TI/BI. We find that short sellers and insiders arbitrage BTD mispricing, but the arbitrage is imperfect because of constraints on short selling and insider trading. Under SFAS No. 109 the predictability is stronger for TEMP/BI, the temporary component of TI/BI, which reflects greater managerial discretion. The results are incremental to a large set of known accruals-based anomaly predictors. We suggest that a sunshine policy of disclosing a reconciliation of book and taxable incomes can reduce mispricing of BTDs and improve capital market resource allocation. Data Availability: Data are obtained from the public sources as indicated in the text.

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The Relationship of Insider Trading Announcements, Ownership Structure and Corporate Governance: An Event Study Analysis of Athens Stock Exchange Market Technology Firms

International Journal of Economics and Finance ◽

10.5539/ijef.v11n7p13 ◽

2019 ◽

Vol 11 (7) ◽

pp. 13 ◽

Cited By ~ 2

Author(s):

Ioannis Antoniadis ◽

Christos Gkasis ◽

Stamatis Kontsas

Keyword(s):

Corporate Governance ◽

Stock Returns ◽

Event Study ◽

Insider Trading ◽

Boards Of Directors ◽

Stock Exchange ◽

Time Windows ◽

Abnormal Stock Returns ◽

Athens Stock Exchange ◽

The Relationship

In the present paper, the relationship between corporate governance mechanisms of a firm and stock returns triggered by insider trading announcements is examined. Event study methodology has been used to evaluate the influence of 636 insider trading announcements performed by executives of 14 listed firms in the Athens Stock Exchange, that operate in the technology sector, during the period 2007-2013. The relationship between cumulative abnormal stock returns (CARs), caused by the announcements, and corporate governance characteristics, was then examined for different time windows, both for sales and purchases of stocks by insiders. Our findings suggest that insider trading, especially in purchases, performed by CEOs and members of the Boards of Directors, has a significant effect on stock returns in the long run. More specifically concentrated ownership structures and control were found to have a negative/positive effect in abnormal stock returns of the firms only in long-term periods of time following the announcement of purchases/sales.

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