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- Title
Insider Trading and Fraudulent Share Repurchase.
- Authors
Du Wang; Xiang Li; Hui Tang; Yicheng Sun
- Abstract
Share repurchase conveys information to investors and influences stock price in capital market. Normally when a company announces share buyback, the company's stock price will rise immediately. Thus, some insiders may take advantage of this pattern and create a fake repurchase event. When the stock price rises due to the announcement, the insiders can sell their shares at a higher price, which is insider trading of fraudulent share repurchase. We study short-term reactions around the repurchase event, using a sample of 2,272 repurchase firms in the Chinese stock market from 2013 to 2019. The main finding is that insider trading around the repurchase event is prevalent and insider trading of fraudulent repurchase is most serious. We also find that companies with more serious agency problem and poorer corporate governance are more likely to engage in fraudulent repurchase, and that companies with lower EPS and ROA, larger firm size and higher leverage are more prone to have fraudulent repurchase event. This paper can provide practical guidance in differentiating the normal repurchase from the fraudulent repurchase.
- Subjects
SECURITIES fraud; INSIDER trading in securities; STOCK repurchasing; STOCKS (Finance); REDEMPTION (Law); INVESTMENT information; STOCK prices; CAPITAL market; CAPITAL stock; BUSINESS size; STOCK exchanges
- Publication
Credit & Capital Markets / Kredit und Kapital, 2022, Vol 55, Issue 2, p227
- ISSN
2199-1227
- Publication type
Article
- DOI
10.3790/ccm.55.2.227