The equity and efficiency of the Australian share market with respect to director trading

Uylangco, Katherine, Easton, Steve and Faff, Robert (2010) The equity and efficiency of the Australian share market with respect to director trading. Accounting Research Journal, 23 1: 5-19. doi:10.1108/10309611011060506


Author Uylangco, Katherine
Easton, Steve
Faff, Robert
Title The equity and efficiency of the Australian share market with respect to director trading
Journal name Accounting Research Journal   Check publisher's open access policy
ISSN 1030-9616
Publication date 2010
Sub-type Article (original research)
DOI 10.1108/10309611011060506
Volume 23
Issue 1
Start page 5
End page 19
Total pages 15
Editor Christine Ryan
Gerry Gallery
Natalie Gallery
Place of publication Bingley, U.K
Publisher Emerald Group Publishing
Collection year 2011
Language eng
Subject 150201 Finance
900101 Finance Services
Formatted abstract
Purpose – The purpose of this paper is to investigate the extent of directors breaching the reporting requirements of the Australian Stock Exchange (ASX) and the Corporations Act in Australia. Further, it seeks to assess whether directors in Australia achieve abnormal returns from trades in their own companies.

Design/methodology/approach – Using an event study approach on an Australian sample, abnormal returns for a range of situations were estimated.

Findings – A total of 13 (seven) per cent of own-company directors trades do not meet the ASX (Corporations Act) requirement of reporting within five (14) business days. Directors do achieve abnormal returns through trading in shares of their own companies. Ignoring transaction costs, outsiders can achieve abnormal returns by imitating directors' trades. Analysis of returns to directors after they trade but before they announce the trade to the market shows that directors are making small but statistically significant returns that are not available to the market. Analysis of returns to directors subsequent to the ASX reporting requirement up to the day the trade is reported shows that directors are making small but statistically significant returns that should be available to the market.

Research limitations/implications – Future research should investigate the linkages between late reporting by directors and disadvantages to outside shareholders and the implementation of internal policies implemented to mitigate insider trading.

Practical implications – Market participants should remain vigilant regarding the potential for late/non-reporting of directors' trades.

Originality/value – Uncovering breaches of reporting regulations are particularly important given that directors tend to purchase (sell) shares when the price is low (high), thereby achieving abnormal returns.
© Emerald Group Publishing Limited
Keyword Directors
Shares
Financial reporting
Australia
Q-Index Code C1
Q-Index Status Confirmed Code
Institutional Status UQ

Document type: Journal Article
Sub-type: Article (original research)
Collections: Faculty of Business, Economics and Law -- Publications
Official 2011 Collection
UQ Business School Publications
 
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Created: Fri, 05 Nov 2010, 15:41:28 EST by Karen Morgan on behalf of UQ Business School