Research Wanted:
Stock Buybacks and Insider Selling

Since company managements often act in their own best interests, I have wondered if insider selling increases when companies buy their own stock.

There is a much research whether stock buybacks affect stock prices, and ramifications on PE, dividends, ownership, etc. But I have not seen any research on the relationship between stock buybacks and insider selling.

It is accepted that stock buybacks tend to “improve” many financial metrics. Things like return on equity (ROE), earnings per share (EPS), return on assets (ROA) all often increase, which are seen as positive. Price-earnings ratio (PE) and share dilution often decrease, which are seen as positive.

The downsides
Buybacks are, by definition, controversial. Usually buybacks occur when stock prices are high, and are curtailed when stock prices are low. This is the opposite of what should happen. Better to buy when prices are low, wouldn’t you think? In addition, using corporate money to buoy up stock price of a company’s shares certainly shows a gigantic lack of imagination. For if a company uses its funds to buy shares, it obviously is not making the best use of its resources: investing in new products, in research, in expanding to new markets… these all are what a company should be doing to improve its future business.

When it happens
While the benefits are often touted as good for a company, I would think that management, acting in the own financial best interests, also would engage in more insider selling than normal. After all, it would seem a golden opportunity to know when strong demand for company shares will occur.

This would need some research from someone who has the resources. Do you?

Do you know of any research into this question?

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