||Insider Trading and Long-run Performance of Bank Loans
||Insider Trading and Long-run Performance of Bank Loans
||Institute of International Management (IIMBA--Master)
||D. Anhadi Lompo
Bank credit announcements have been considered in the financial press and finance literature as a special corporate event with significant positive announcement period returns. Indeed, bank credit does have some economic advantages for their beneficiaries and the market positive reaction to their announcements is not surprising. However, recent studies have documented that credit agreements are followed by a poor performance in the subsequent three years. This long term underperformance prompts us to look into insiders’ incentives in entering the credit agreement. Do they really contract the credit for positive net present value project? To answer this question we analyze their own trading in their firms’ stock prior to the credit announcement to figure out if they try to protect themselves from the poor long term performance of their firms by selling their own stocks. We find that, on average, insiders sell their shares before the bank credit announcement.
TABLE OF CONTENTS III
LIST OF TABLES V
LIST OF FIGURES VI
CHAPTER ONE INTRODUCTION AND RESEARCH OBJECTIVES 1
CHAPTER TWO LITERATURE REVIEW AND RESEARCH HYPOTHESES 6
2.1 Bank Loans 6
2.1.1 Bank Loan as Special Form of Financing 6
2.1.2 Bank Loan and Long-run Stock Returns 7
2.2 Insider Trading 8
2.2.1 Definition of Insider Trading 8
2.2.2 Insider Trading and Stock Performance9
2.3 Research Hypotheses 10
CHAPTER THREE RESEARCH DESIGN AND METHODOLOGY 13
3.1 Data Sources 13
3.1.1 Sample Firms 13
3.2 Measuring Bank Loan Announcement Period Returns 14
3.3 Measuring Long Term Performance 15
3.4 Measuring and Testing Insider Trading 16
3.5 Insider Trading and Long-run Performance 17
CHAPTER FOUR ANALYSIS 19
4.1 Bank Loan Statistics 19
4.2 Long Term Returns 23
CHAPTER FIVE CONCLUSIONS 26
LIST OF TABLES
Table 4- 1 Bank Loan Distribution 20
Table 4- 2 Basic Descriptive Statistics 22
Table 4- 3 Announcement Period Returns and Abnormal Insider Trading 23
Table 4- 4 Insider Trading and Long Term Performance 24
Table 4- 5 Regression Results 25
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