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Wang, D., Li, X., Tang, H., Sun, Y. Insider Trading and Fraudulent Share Repurchase. Credit and Capital Markets – Kredit und Kapital, 55(2), 227-260. https://doi.org/10.3790/ccm.55.2.227
Wang, Du; Li, Xiang; Tang, Hui and Sun, Yicheng "Insider Trading and Fraudulent Share Repurchase" Credit and Capital Markets – Kredit und Kapital 55.2, 2022, 227-260. https://doi.org/10.3790/ccm.55.2.227
Wang, Du/Li, Xiang/Tang, Hui/Sun, Yicheng (2022): Insider Trading and Fraudulent Share Repurchase, in: Credit and Capital Markets – Kredit und Kapital, vol. 55, iss. 2, 227-260, [online] https://doi.org/10.3790/ccm.55.2.227
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Insider Trading and Fraudulent Share Repurchase

Wang, Du | Li, Xiang | Tang, Hui | Sun, Yicheng

Credit and Capital Markets – Kredit und Kapital, Vol. 55 (2022), Iss. 2 : pp. 227–260

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Article Details

Publisher Name
Duncker & Humblot
DOI
https://doi.org/10.3790/ccm.55.2.227
Language
English
Pages
34
Keywords

Author Details

Du Wang, Organization Department of CPC Jinjiang District Committee, Chengdu, China.

Xiang Li, Sichuan Henghexin Law firm, Chengdu, China.

Hu Tang, An Xi (Shanghai) Commercial Management Ltd, China.

Yicheng Sun (corresponding author), Southwestern University of Finance and Economics, Chengdu, China.

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Abstract

Share repurchase conveys information to investors and influences stock price in capital market. Normally when a company announces share buyback, the company’s stock price will rise immediately. Thus, some insiders may take advantage of this pattern and create a fake repurchase event. When the stock price rises due to the announcement, the insiders can sell their shares at a higher price, which is insider trading of fraudulent share repurchase. We study short-term reactions around the repurchase event, using a sample of 2,272 repurchase firms in the Chinese stock market from 2013 to 2019. The main finding is that insider trading around the repurchase event is prevalent and insider trading of fraudulent repurchase is most serious. We also find that companies with more serious agency problem and poorer corporate governance are more likely to engage in fraudulent repurchase, and that companies with lower EPS and ROA, larger firm size and higher leverage are more prone to have fraudulent repurchase event. This paper can provide practical guidance in differentiating the normal repurchase from the fraudulent repurchase.

Table of Contents

Section Title Page Action Price
Du Wang et al.: Insider Trading and Fraudulent Share Repurchase 227
Abstract 227
I. Introduction 227
II. Literature Review and Hypothesis Development 232
III. Data and Methodology 234
3.1 Sample 234
3.2 Methodology 227
Event Study 227
Earning Management 227
Cash out of Insiders 227
3.3 Agency Problems 227
3.4 Corporate Governance 227
IV. Empirical Results 227
4.1 Insider Trading 227
Earnings Management 227
Cash out of Insiders 228
4.2 Agency Problems 228
4.3 Corporate Governance 228
4.4 Financial Indicators 228
V. Conclusion 228
References 228
Appendix: Variable Definitions and Data Sources 229

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