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Directors’ share dealings and corporate insolvencies: evidence from the UK
Ozkan, Aydin Poletti-Hughes, Jannine Trzeciakiewicz, Agnieszka
Ozkan, Aydin
Poletti-Hughes, Jannine
Trzeciakiewicz, Agnieszka
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© 2015 Taylor & Francis. This is an Author's Original Manuscript of an article published by Taylor & Francis in European Journal of Finance on 8 May 2015 available online at http://dx.doi.org/10.1080/1351847X.2015.1040168
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04/04/2015
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Abstract
This paper investigates the relation between insider trading and the likelihood of insolvency with a specific focus on the directors’ sale and purchase transactions preceding insolvency.We use a unique data set on directors’ dealings in 474 non-financial UK firms, of which 117 filed for insolvency, over the period 2000–2010.We show that the directors of insolvent firms increase their purchase transactions significantly as the insolvency approaches. The results also reveal a significant relation between three different measures of insider trading activity and the likelihood of insolvency, which is observed to be positive only during the last six-month trading period. The relation is negative for the earlier trading periods. While the earlier purchase transactions appear to be motivated by superior information held by insiders, the purchase trades closer to the insolvency date are possibly initiated by directors’ motives to influence the market’s perception of the firm in an attempt to avert or delay insolvency.
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Ozkan A, Poletti-Hughes J and Trzeciakiewicz A (2017) Directors’ share dealings and corporate insolvencies: Evidence from the UK. European Journal of Finance. 23(5): 427–455.
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