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.
We find that corporate giving as a private benefit of control distorts investment and financing decisions, results supporting Jensen’s (1986) free cash flow theory. These investment distortions reduce shareholder wealth, especially in cash-...Read more
Exploiting the 2009 amendments to Regulation S-K, we provide unique evidence on the first-time disclosure of the reasons firms state for combining (separating) the roles of CEO and chairman. The stated reasons support both agency theory and...Read more
This paper examines the effect of investor power in a model of staged equity financing. It shows how the usual effect where market power reduces valuations can be reversed in later rounds. Once they become insiders, powerful investors may use...Read more
We analyze the relation between insider trading and the networks of executive and non-executive directors in UK listed companies. While most existing studies focus on firm-specific private information, we find that non-firm-specific information...Read more