Insider trading returns and dividend signals |
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| Authors: | Louis T.W. Cheng Wallace N. Davidson T.Y. Leung |
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| Affiliation: | 1. College of Business, Korea Advanced Institute of Science and Technology, 85 Hoegiro, Dongdaemun-gu, Seoul 130-722, Republic of Korea;2. Department of Finance, David Eccles School of Business, University of Utah, 1655 East Campus Center Drive, Salt Lake City, UT 84112-9301, USA;3. World Bank Group Singapore Office, World Bank, 10 Marina Boulevard, 018983, Singapore;4. Monetary Authority of Singapore, 10 Shenton Way, MAS Building, 079117, Singapore;1. University of Kentucky, School of Management, Finance Area, 445J Gatton College of Business & Economics, Lexington, KY 40506, United States;2. University of Florida, Department of Finance Insurance & Real Estate, PO Box 117168, Gainesville, FL 32611, United States |
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| 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. |
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