Bankruptcy and Insider Trading: Differences Between Exchange-Listed and OTC Firms

Authors

  • THOMAS GOSNELL,

  • ARTHUR J. KEOWN,

  • JOHN M. PINKERTON

    Search for more papers by this author
    • Assistant Professor, Department of Finance, University of Miami; The R. B. Pamplin Professor of Finance, Department of Finance, The R. B. Pamplin College of Business, Virginia Polytechnic Institute and State University; and Crestar Professor of Banking, Department of Finance, The R. B. Pamplin College of Business, Virginia Polytechnic Institute and State University, respectively. We are grateful to an anonymous referee for this Journal and René Stulz for their comments and suggestions. We also wish to thank John Wright and Robert Gabele of Investnet Group, Inc., for generously supplying the data and the University of Miami School of Business Administration Corporate Affiliates for their financial support.

ABSTRACT

Over the two-year period prior to the bankruptcy announcement, insider trading is significantly greater for OTC bankrupt firms, but not for exchange-listed firms, than for an industry-size matched sample of nonbankrupt firms. In addition, the level of insider selling increases over the final five months leading to the first public announcement of OTC firms. Finally, firms displaying the most negative price reaction over the announcement period are found to have a significantly larger proportion of insider selling than other firms.

Ancillary