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Who Benefits in an Insider Negotiated Block Trade?

Authors

  • Saeyoung Chang,

    1. Saeyoung Chang is a Professor in the Department of Finance at the University of Nevada, Las Vegas in Las Vegas, NV. David Mayers is an Emeritus Professor in the School of Business Administration and the A. Gary Anderson Graduate School of Management at the University of California, Riverside in Riverside, CA.
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  • David Mayers

    1. Saeyoung Chang is a Professor in the Department of Finance at the University of Nevada, Las Vegas in Las Vegas, NV. David Mayers is an Emeritus Professor in the School of Business Administration and the A. Gary Anderson Graduate School of Management at the University of California, Riverside in Riverside, CA.
    Search for more papers by this author

  • We thank an anonymous referee, Jennifer Bethel, Larry Dann, Harry and Linda DeAngelo, Larry Harris, Mark Huson, and seminar participants at Arizona State University, the Ohio State University, University of Nevada, Las Vegas, and University of Southern California for valuable comments and suggestions. Saeyoung Chang acknowledges financial support from Shustek/Vestin and CB Richard Ellis Summer Research Grants.

Abstract

We examine insider negotiated block trades to investigate whether new active blockholders with special expertise create shareholder value. In contrast to existing studies, we find no reliable overall evidence of permanent stock price increases, operating changes, or improved net of industry profitability associated with these major control changes. Top executive turnover is extensive, but appears largely attributable to the block sellers’ actions, not the imposition of discipline by the block buyer. Results suggest initial shareholder gains anticipate takeovers, not improvements in profitability. When a takeover is not forthcoming, the gain disappears.

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