Abnormal returns on Canadian insider purchases before press releases
ISSN: 2040-8269
Article publication date: 31 May 2018
Issue publication date: 27 September 2018
Abstract
Purpose
This study aims to examine whether insider purchases made within 30 days prior to the publication of various kinds of press releases earn higher abnormal returns (AR) than those in the absence of such announcements. It also attempts to identify the factors that explain ARs.
Design/methodology/approach
This study considers data for Canadian insider purchases made on the Toronto Stock Exchange 60 Index. An event study methodology is used to calculate AR, and a mixed regression model is used to evaluate the effect of corporate news on AR.
Findings
The empirical results indicate that insiders achieve greater ARs when they purchase stock prior to press releases; findings also show that these returns are specifically related to purchases made before the announcements of mergers and acquisitions, ongoing projects, financial structure, financial results and asset disposals. This is because of the firm effect.
Practical implications
These findings have important implications for Canadian market regulatory authorities, especially the Ontario Securities Commission and other market participants who are interested in corporate governance, such as boards of directors and shareholders.
Originality/value
The present findings show that regulatory bodies must work with companies to raise awareness of improper insider trading.
Keywords
Citation
Morris, T. and Boubacar, H. (2018), "Abnormal returns on Canadian insider purchases before press releases", Management Research Review, Vol. 41 No. 10, pp. 1220-1250. https://doi.org/10.1108/MRR-06-2017-0192
Publisher
:Emerald Publishing Limited
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