Double Signals or Single Signal? An Investigation of Insider Trading around Share Repurchases

Abstract

This study examines directors' dealing activity around share repurchasing periods in Hong Kong. There are significant insider trading activities before the share repurchasing period. Consistent with the signaling hypothesis, the directors' purchase activities during the share repurchase period are significantly higher than the expected level while the directors' sale activities are abnormally lower than the expected level. Double signals of share repurchases and directors' purchases create a stronger signal in conveying undervaluation. However, insider sales around share repurchase discounts the undervaluation signal. This study provides some evidence that information signaling is a dominating factor driving the share repurchase decision.