Abstract
Debt capital represents one of the most important means with which German companies finance their business. Yet, despite its importance, academics and practitioners alike typically analyze debt capital separately from other components of a firm's capital structure components. One important question in this context is whether certain stock market events affect the prices and credit spreads of a firm's bonds. Specifically, hardly anything is known about the bond market's reaction to insider stock trades. Our study attempts to fill this gap by analyzing the bond price and spread development around insider trading events for 35 German companies. Our sample period ranges from January 2002 to September 2007 and covers all insider trades in these firms. We find that insider stock sales convey an important signal to the bond market. Insider stock purchases reduce expected credit risk only at insignificant levels, while sales terminate downward pre-trade credit risk adjustments. However, the evidence on the factors that influence the bond market reaction is only weak.
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