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Do Insiders Trading Before Open Market Share Repurchase Announcement Give an Additional Signaling? A Study in The Indian Context

Author

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  • Sarthak Kumar Jena

    (Vinod Gupta School of Management, Indian Institute of Technology Kharagpur, India-721302)

  • Chandra Sekhar Mishra

    (Vinod Gupta School of Management, Indian Institute of Technology Kharagpur, India-721302 Author-Name: Prabina Rajib
    Vinod Gupta School of Management, Indian Institute of Technology Kharagpur, India-721302)

Abstract

This paper aims to derive an undervaluation signal from the insider trading of Indian companies, where the ownership is complex and concentrated, investors’ protection is weak, and the insider rules and regulations are not stringent like a developed country. It also examines the relationship between insider trading and the actual share repurchase by the firm. A sample of 78 companies spanning from 2008–09 to 2014–15 is analysed in this study because of the unavailability of insider data in the Indian context. The paper finds that insider trading of sample firms are more than matching firms before buyback announcement. Insider buying before share repurchase announcement positively influences share repurchase decisions. We observed that insider buying has a positive and significant relationship, whereas insider selling has a negative and significant relationship with announcement return. We also found that insider buying has a positive and significant relationship with actual share repurchase and program completion. The study is constrained by the small sample size, so the results must be viewed by keeping this limitation in mind. The paper is the first study in the Indian context wherein the insider trading literature is extended to share repurchase to find out undervaluation signal associated with it.

Suggested Citation

  • Sarthak Kumar Jena & Chandra Sekhar Mishra, 2018. "Do Insiders Trading Before Open Market Share Repurchase Announcement Give an Additional Signaling? A Study in The Indian Context," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 14(2), pages 103-135.
    • Handle: RePEc:usm:journl:aamjaf01402_103-135
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    References listed on IDEAS

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    1. DeLisle, R. Jared & Morscheck, Justin D. & Nofsinger, John R., 2020. "Share repurchases and wealth transfer among shareholders," The Quarterly Review of Economics and Finance, Elsevier, vol. 76(C), pages 368-378.

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