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Insightful Insiders? Insider Trading and Stock Return around Debt Covenant Violation Disclosures

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  • Paul A. Griffin
  • David H. Lont
  • Kate McClune

Abstract

type="main"> This study asks whether insider trading associates with an information advantage around first-time debt covenant violation disclosures in SEC filings, which potentially results from early access to information about the debt covenant violation disclosure. We document two results. First, we find net insider selling up to 12 months before a debt covenant violation disclosure, which precedes investors' negative returns before disclosure; and net insider buying up to 12 months after disclosure, which precedes investors' positive returns after disclosure. Second, we show that net insider trading one to two months before and after the violation disclosure associates predictably with investors' short-term reaction to the covenant violation announcement.

Suggested Citation

  • Paul A. Griffin & David H. Lont & Kate McClune, 2014. "Insightful Insiders? Insider Trading and Stock Return around Debt Covenant Violation Disclosures," Abacus, Accounting Foundation, University of Sydney, vol. 50(2), pages 117-145, June.
    • Handle: RePEc:bla:abacus:v:50:y:2014:i:2:p:117-145
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    File URL: http://hdl.handle.net/10.1111/abac.12025
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    8. Millicent Chang & Andrew B. Jackson & Marvin Wee, 2018. "A review of research on regulation changes in the Asia‐Pacific region," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(3), pages 635-667, September.

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