Date of Award
Doctor of Philosophy (PhD)
Dr. Diego Escobari
Dr. James W. Boudreau
Dr. Monika Rabarison
Insider trading has always been an area with high priority for the regulation and enforcement of Securities and Exchange Commission (SEC) programs, as insiders are supposed to possess material, non-public corporate information. The main goal of this dissertation is to examine the insider trading behaviors.
In the first essay, I test whether insiders trade on investor optimism and superior firm performance information in a special context – stock splits. Using insider trading data from Thomson Financial Insider Filing Data Files and stock split announcements from the Center for Research in Security Prices (CRSP), this essay shows that, starting as early as twenty-four months before stock split announcements, insiders significantly increase sales over purchases to take advantage of investor overreaction brought by split announcements. In addition, better post-split operating performance is associated with higher pre-split insider purchases. The net insider purchase prior to stock splits is higher for firms with good operating performance than those with poor performance in post-split periods, indicating that insiders also incorporate information about firm prospects in their trading patterns before split events.
In the second essay, I examine the impact of institutional ownership volatility on corporate insider trading. Using the panel vector autoregressive (VAR) model, supplemented with estimates from three-stage least squares (3SLS), the empirical results show that institutional ownership volatility is positively and significantly related to insider ownership. Additionally, such positive impact of institutional ownership volatility on insider ownership is consistent across different types of institutional shareholders. Insiders tend to reduce their holdings when there are long-horizon institutional owners in the firms, and increase their holdings when there are more turnovers in institutional holdings. The results suggest that the lack of stable institutional owners (high institutional ownership volatility) incentivizes insiders to accumulate their ownership of the firms and exercise their entrenchment.
University of Texas-Pan American