Insider trading returns and dividend signals

Tsz Wan Cheng, Wallace N. Davidson, T. Y. Leung

Research output: Journal article publicationJournal articleAcademic researchpeer-review

10 Citations (Scopus)

Abstract

The literature shows that insider trading activities and dividends contain information content and serve as signals to firm value. If insider return is a proxy for information asymmetry, we should expect a positive relation between dividends and insider returns. Using a sample of unambiguous (good and bad) news concerning earnings and dividend announcements from Hong Kong firms, we show that information asymmetry is stronger for bad news firms with insider sales than good news firms with insider purchases. In addition, we improve the methodology of Khang and King [Khang, K., & King, T. H. D. (2006). Does dividend policy relate to cross-sectional variation in information asymmetry? Evidence from returns to insider trades. Financial Management, 35, 71-94] and provide evidence that dividend is a credible signal for measuring information asymmetry.
Original languageEnglish
Pages (from-to)421-429
Number of pages9
JournalInternational Review of Economics and Finance
Volume20
Issue number3
DOIs
Publication statusPublished - 1 Jun 2011

Keywords

  • Dividends
  • Earnings
  • Information asymmetry
  • Insider trading

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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