Insider Trading and Financing Constraints
Working Paper Author/Authors
Abstract
Insider trading may alleviate financing constraints by conveying value-relevant information to the market (the information effect) or may exacerbate financing constraints by impairing market liquidity and distorting insiders? incentives to disclose value-relevant information (the confidence effect). We examine the significance of these two contrasting effects by investigating the link between insider trading and financing constraints as measured by the investment-cash flow sensitivity. We find that, overall insider trading exacerbates financing constraints; however the information effect dominates the confidence effect for insider purchases. Only trades by executive directors are significantly related to financing constraints.
© Ali Ataullah, Marc Goergen, Hang Le, 2013
All rights reserved. Distributed for discussion purposes only; not to be reproduced without permission.
The views expressed are those of the author(s) and do not necessarily reflect those of ECGI or its members.
For copyright queries or takedown requests, contact wp@ecgi.org.
