Abnormal returns on Canadian insider purchases before press releases

Abstract

Purpose

This study aims to examine whether insider purchases made within 30 days prior to the publication of various kinds of press releases earn higher abnormal returns (AR) than those in the absence of such announcements. It also attempts to identify the factors that explain ARs.

Design/methodology/approach

This study considers data for Canadian insider purchases made on the Toronto Stock Exchange 60 Index. An event study methodology is used to calculate AR, and a mixed regression model is used to evaluate the effect of corporate news on AR.

Findings

The empirical results indicate that insiders achieve greater ARs when they purchase stock prior to press releases; findings also show that these returns are specifically related to purchases made before the announcements of mergers and acquisitions, ongoing projects, financial structure, financial results and asset disposals. This is because of the firm effect.

Practical implications

These findings have important implications for Canadian market regulatory authorities, especially the Ontario Securities Commission and other market participants who are interested in corporate governance, such as boards of directors and shareholders.

Originality/value

The present findings show that regulatory bodies must work with companies to raise awareness of improper insider trading.

Citation

Morris, T. and Boubacar, H. (2018), "Abnormal returns on Canadian insider purchases before press releases", Management Research Review, Vol. 41 No. 10, pp. 1220-1250. https://doi.org/10.1108/MRR-06-2017-0192