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Corporate Bankruptcy and Insider Trading

H. Nejat Seyhun and Michael Bradley
The Journal of Business
Vol. 70, No. 2 (April 1997), pp. 189-216
DOI: 10.1086/209715
Stable URL: http://www.jstor.org/stable/10.1086/209715
Page Count: 28
Subjects: Business Finance
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Abstract

We document significant sales by the insiders of firms filing bankruptcy petitions prior to the filing date. We also find that selling is more intense for top executives and officers and that insiders in general systematically sell stock before prices fall and buy stock after prices have fallen. Although this trading pattern may simply reflect an implicit compensation arrangement between insiders and stockholders, the significant sell‐off does raise potential questions regarding managements' incentives to maximize shareholder wealth throughout the Chapter 11 process.