Insider Trading and the Long-Run Performance of Private Placement

• Main Authors: Chu-Jiun Wei, 魏竹君
• Other Authors: Shao-Chi Chang
• Format: Others
• Language: en_US
• Published: 2005
• Online Access: http://ndltd.ncl.edu.tw/handle/40370505932547156058

碩士 === 國立成功大學 === 國際企業研究所碩博士班 === 93 === 　A private placement is a transaction by an issuer committed to selling all new issues to investors without general solicitation of public ones. Prior empirical evidence suggested that private placement firms experience negative post-announcement stock-price performance. Hertzel, Lemmon, Linck, and Rees (2002) argue that insider trading could be one explanation of this scenario. That is, mangers may knowingly sell shares privately when the equity is overvalued in the market, and this leads to the negative long-run performance. Though, this argument has never been examined in the literature. So in this study, I test the “window of opportunity” hypothesis by examining insider trading activities. The “window of opportunity” hypothesis predicts that insiders may sell their holdings of equity before private placement, and the amount of sales can predict the long-run performance of private placement firms. Usually, the more the insiders sell, the worse the long-run performance will be. 　My results support the “window of opportunity” hypothesis. In all the regressions I conduct, the stock returns are significantly positively related to number of net purchases, abnormal number of net purchases, shares of net purchases, abnormal shares of net purchases, dollar value of net purchases, and abnormal dollar value of net purchases. This evidence indicates that the more the insiders sell prior to the private placement issuing, the worse the long-run stock-price performance will be.