Insider trading returns and dividend signals

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

doi:10.1016/j.iref.2010.11.016

Insider trading returns and dividend signals

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

Research output: Journal article publication › Journal article › Academic research › peer-review

14 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 language	English
Pages (from-to)	421-429
Number of pages	9
Journal	International Review of Economics and Finance
Volume	20
Issue number	3
DOIs	https://doi.org/10.1016/j.iref.2010.11.016
Publication status	Published - 1 Jun 2011

Keywords

Dividends
Earnings
Information asymmetry
Insider trading

ASJC Scopus subject areas

Finance
Economics and Econometrics

More information

10.1016/j.iref.2010.11.016

Cite this

@article{19b32ae5ba6d435e80a80eb1070e9c8b,

title = "Insider trading returns and dividend signals",

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.",

keywords = "Dividends, Earnings, Information asymmetry, Insider trading",

author = "Cheng, {Tsz Wan} and Davidson, {Wallace N.} and Leung, {T. Y.}",

year = "2011",

month = jun,

day = "1",

doi = "10.1016/j.iref.2010.11.016",

language = "English",

volume = "20",

pages = "421--429",

journal = "International Review of Economics and Finance",

issn = "1059-0560",

publisher = "Elsevier Inc.",

number = "3",

}

TY - JOUR

T1 - Insider trading returns and dividend signals

AU - Cheng, Tsz Wan

AU - Davidson, Wallace N.

AU - Leung, T. Y.

PY - 2011/6/1

Y1 - 2011/6/1

N2 - 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.

AB - 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.

KW - Dividends

KW - Earnings

KW - Information asymmetry

KW - Insider trading

UR - http://www.scopus.com/inward/record.url?scp=79956313439&partnerID=8YFLogxK

U2 - 10.1016/j.iref.2010.11.016

DO - 10.1016/j.iref.2010.11.016

M3 - Journal article

SN - 1059-0560

VL - 20

SP - 421

EP - 429

JO - International Review of Economics and Finance

JF - International Review of Economics and Finance

IS - 3

ER -

Insider trading returns and dividend signals

Abstract

Keywords

ASJC Scopus subject areas

More information

Other files and links

Fingerprint

Cite this