Publication Type
Journal Article
Version
acceptedVersion
Publication Date
6-2020
Abstract
Despite abundant empirical evidence of informed trading ahead of major corporate events, no such evidence has been reported in the case of corporate spinoff (SP) announcements. This is surprising, as SP announcements are unexpected, and are also associated with a positive price jump in the parent company’s stock. Using a sample of 280 US announcement events from 1996 to 2013, we document significant pre-announcement informed trading activity in options for about 9 to 16% of events in our sample. In contrast, we find statistically insignificant evidence of informed trading in stocks, suggesting that informed traders employ leverage through options. In light of the mixed evidence about the effect of SP announcements on a parent firm’s credit risk and its debt, we also test for the existence of pre-announcement informed trading activity in bonds and credit default swaps, but find no support for such a conclusion.
Keywords
Asymmetric Information, CDS, Corporate Bonds, Insider Trading, Spinoffs, Market Microstructure, Options, TRACE
Discipline
Business | Corporate Finance | Finance and Financial Management
Research Areas
Finance
Publication
Critical Finance Review
Volume
9
Issue
1-2
First Page
115
Last Page
155
ISSN
2164-5744
Identifier
10.1561/104.00000084
Publisher
Now Publishers
Citation
AUGUSTIN, Patrick; BRENNER, Menachem; HU, Jianfeng; and SUBRAHMANYAM, Marti.
Are corporate spin-offs prone to insider trading?. (2020). Critical Finance Review. 9, (1-2), 115-155.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/4476
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1561/104.00000084