Insider trading and firm value: Evidence from Vietnam
Main Article Content
Abstract
Although, many studies have focused on evaluating factors affecting firm value, there is the lack of studies that have focused on the role of insider trading in determining of firm value in Vietnam. Therefore, this study investigates the effect of insider trading on firm value in 727 Vietnamese listed firms over the 2010 – 2021 period. The GLS regression results show that insider trading plays an important role in determining firm value. Specifically, the increase in firm value is positively associated with increased net buy trading by insiders, institutional insiders, individual insiders, and large shareholders. The results indicate that insider trading helps firms enhance value, but insider investors may intervene in firm value through stock manipulation. Therefore, policymakers must have strict regulations related to insider trading transactions and adequate sanctions for violations.
Article Details
Keywords
Insider trading, Institutional insiders, Individual insiders, Firm value, Large shareholders
References
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Barberis, N., Mukherjee, A., & Wang, B. (2016). Prospect Theory and Stock Returns: An Empirical Test. The Review of Financial Studies, 29(11), 3068–3107. https://doi.org/10.1093/rfs/hhw049
Barnea, A., Cronqvist, H., & Siegel, S. (2010). Nature or nurture: What determines investor behavior? Journal of Financial Economics, 98(3), 583–604. https://doi.org/10.1016/j.jfineco.2010.08.001
Batten, J., & Vo, X. V. (2019). Liquidity and firm value in an emerging market. The Singapore Economic Review, 64(02), 365–376. https://doi.org/10.1142/S0217590817470063
Betzer, A., & Theissen, E. (2009). Insider Trading and Corporate Governance: The Case of Germany. European Financial Management, 15(2), 402–429. https://doi.org/10.1111/j.1468-036X.2007.00422.x
Bhabra, G. S. (2007). Insider ownership and firm value in New Zealand. Journal of Multinational Financial Management, 17(2), 142–154. https://doi.org/10.1016/j.mulfin.2006.08.001
Bhattacharya, U. (2014). Insider Trading Controversies: A Literature Review. Annual Review of Financial Economics, 6(1), 385–403. https://doi.org/10.1146/annurev-financial-110613-034422
Carlton, D. W., & Fischel, D. R. (1982). The Regulation of Insider Trading. Stanford Law Review, 35, 857.
Cheng, L., Firth, M., Leung, T. Y., & Rui, O. (2006). The effects of insider trading on liquidity. Pacific-Basin Finance Journal, 14(5), 467–483. https://doi.org/10.1016/j.pacfin.2006.01.006
Cheng, Q., & Lo, K. (2006). Insider Trading and Voluntary Disclosures. Journal of Accounting Research, 44(5), 815–848. https://doi.org/10.1111/j.1475-679X.2006.00222.x
Choi, P. M. S., Choi, J. H., & Chung, C. Y. (2020). Do individual traders undermine firm valuation? Finance Research Letters, 36, 101567. https://doi.org/10.1016/j.frl.2020.101567
Chung, K. H., & Charoenwong, C. (1998). Insider Trading and the Bid-Ask Spread. Financial Review, 33(3), 1–20. https://doi.org/10.1111/j.1540-6288.1998.tb01379.x
Cornell, B., & Sirri, E. R. (1992). The Reaction of Investors and Stock Prices to Insider Trading. The Journal of Finance, 47(3), 1031–1059. https://doi.org/10.1111/j.1540-6261.1992.tb04004.x
Đặng Tùng Lâm, & Nguyễn Thị Minh Huệ (2017). Sở hữu cổ đông lớn và thanh khoản cổ phiếu trên Thị trường chứng khoán Việt Nam. Kinh tế và Phát triển, 241. https://ktpt.neu.edu.vn/tap-chi/so-241/muc-luc-562/so-huu-co-dong-lon-va-thanh-khoan-co-phieu-tren-thi-truong-chung-khoan-viet-nam.375661.aspx
Fang, V. W., Noe, T. H., & Tice, S. (2009). Stock market liquidity and firm value. Journal of Financial Economics, 94(1), 150–169. https://doi.org/10.1016/j.jfineco.2008.08.007
Ferris, S. P., & Park, K. (2005). Foreign ownership and firm value: evidence from Japan. In M. Hirschey, K. John, & A. K. Makhija (Eds.), Corporate Governance (Vol. 11, pp. 1–29). Emerald Group Publishing Limited. https://doi.org/10.1016/S1569-3732(04)11001-3
Fishman, M. J., & Hagerty, K. M. (1992). Insider Trading and the Efficiency of Stock Prices. The RAND Journal of Economics, 23(1), 106–122. https://www.jstor.org/stable/2555435
Glaser, M., & Weber, M. (2007). Overconfidence and trading volume. The Geneva Risk and Insurance Review, 32(1), 1–36. https://doi.org/10.1007/s10713-007-0003-3
Goergen, M., Renneboog, L., & Zhao, Y. (2019). Insider trading and networked directors. Journal of Corporate Finance, 56, 152–175. https://doi.org/10.1016/j.jcorpfin.2019.02.001
Haddock, D. D., & Macey, J. R. (1985). Coasian Model of Insider Trading. Northwestern University Law Review, 80, 1449. https://heinonline.org/HOL/LandingPage?handle=hein.journals/illlr80&div=46&id=&page=
Han, B. (2006). Insider Ownership and Firm Value: Evidence from Real Estate Investment Trusts. The Journal of Real Estate Finance and Economics, 32(4), 471–493. https://doi.org/10.1007/s11146-006-6963-8
Hanson, R. C., & Song, M. H. (1995). Managerial Ownership Change and Firm Value: Evidence from Dual-Class Recapitalizations and Insider Trading. Journal of Financial Research, 18(3), 281–297. https://doi.org/10.1111/j.1475-6803.1995.tb00567.x
Hatch, B. C., Johnson, S. A., Wang, Q. E., & Zhang, J. (2021). Algorithmic trading and firm value. Journal of Banking & Finance, 125. https://doi.org/10.1016/j.jbankfin.2021.106090
Huang, J., Xu, N., & Yu, H. (2020). Pollution and Performance: Do Investors Make Worse Trades on Hazy Days? Management Science, 66(10), 4455–4476. https://doi.org/10.1287/mnsc.2019.3402
Inaishi, R., Toya, K., Zhai, F., & Kita, E. (2010). Effect of Overconfident Investor Behavior to Stock Market. Journal of Advanced Computational Intelligence and Intelligent Informatics, 14, 661–668. https://doi.org/10.20965/jaciii.2010.p0661
Jaffe, J. F. (1974). Special Information and Insider Trading. The Journal of Business, 47(3), 410–428. https://www.jstor.org/stable/2352458
Jawed, M. S., & Kotha, K. K. (2020). Stock Liquidity and Firm Value: Evidence from a Policy Experiment in India. International Review of Finance, 20(1), 215–224. https://doi.org/10.1111/irfi.12200
Kahneman, D., & Tversky, A. (1979). On the interpretation of intuitive probability: A reply to Jonathan Cohen. Cognition, 7(4), 409–411. https://doi.org/10.1016/0010-0277(79)90024-6
Karpoff, J. M. (1986). A Theory of Trading Volume. The Journal of Finance, 41(5), 1069–1087. https://doi.org/10.1111/j.1540-6261.1986.tb02531.x
Khawaja, M. J., & Alharbi, Z. N. (2021). Factors influencing investor behavior: An empirical study of Saudi Stock Market. International Journal of Social Economics, 48(4), 587–601. https://doi.org/10.1108/IJSE-07-2020-0496
Kim, O., & Verrecchia, R. E. (1991). Trading Volume and Price Reactions to Public Announcements. Journal of Accounting Research, 29(2), 302–321. https://doi.org/10.2307/2491051
King, M., & Roell, A. (1988). Insider trading. Economic Policy, 3(6), 163–193. https://doi.org/10.2307/1344507
Lee, C. M. C., & Swaminathan, B. (2000). Price Momentum and Trading Volume. The Journal of Finance, 55(5), 2017–2069. https://doi.org/10.1111/0022-1082.00280
Leland, H. E. (1992). Insider Trading: Should It Be Prohibited? Journal of Political Economy, 100, 859–887. https://doi.org/10.1086/261843
Levine, R., Lin, C., & Wei, L. (2017). Insider Trading and Innovation. The Journal of Law and Economics, 60(4), 749–800. https://doi.org/10.1086/696384
Loomes, G., & Sugden, R. (1982). Regret Theory: An Alternative Theory of Rational Choice Under Uncertainty. The Economic Journal, 92(368), 805–824. https://doi.org/10.2307/2232669
Lorie, J. H., & Niederhoffer, V. (1968). Predictive and Statistical Properties of Insider Trading. The Journal of Law and Economics, 11, 35–53. https://doi.org/10.1086/466642
Marin, J. M., & Olivier, J. P. (2008). The Dog That Did Not Bark: Insider Trading and Crashes. The Journal of Finance, 63(5), 2429–2476. https://doi.org/10.1111/j.1540-6261.2008.01401.x
Masson, R. T., & Madhavan, A. (1991). Insider Trading and the Value of the Firm. The Journal of Industrial Economics, 39(4), 333–353. https://doi.org/10.2307/2098435
McConnell, J. J., Servaes, H., & Lins, K. V. (2008). Changes in insider ownership and changes in the market value of the firm. Journal of Corporate Finance, 14(2), 92–106. https://doi.org/10.1016/j.jcorpfin.2008.02.001
Modigliani, F., & Miller, M. H. (1958). The Cost of Capital, Corporation Finance and the Theory of Investment. The American Economic Review, 48, 261–297. https://www.jstor.org/stable/1809766
Nagy, R. A., & Obenberger, R. W. (1994). Factors Influencing Individual Investor Behavior. Financial Analysts Journal, 50(4), 63–68. https://doi.org/10.2469/faj.v50.n4.63
Nguyen, N. H., & Shiu, C.-Y. (2022). Stewardship, institutional investors monitoring, and firm value: Evidence from the United Kingdom. Journal of Multinational Financial Management, 64, 100732. https://doi.org/10.1016/j.mulfin.2022.100732
Oxelheim, L., & Randøy, T. (2003). The impact of foreign board membership on firm value. Journal of Banking & Finance, 27(12), 2369–2392. https://doi.org/10.1016/S0378-4266(02)00395-3
Phan Quỳnh Trang (2018). Corporate debt and investment with financial constraints: Vietnamese listed firms. Research in International Business and Finance, 46, 268–280. https://doi.org/10.1016/j.ribaf.2018.03.004
Reichman, N. (1993). Insider Trading. Crime and Justice, 18, 55–96. https://doi.org/10.1086/449222
Roll, R., Schwartz, E., & Subrahmanyam, A. (2009). Options trading activity and firm valuation. Journal of Financial Economics, 94(3), 345–360. https://doi.org/10.1016/j.jfineco.2009.02.002
Roulstone, D. T. (2003). The Relation Between Insider-Trading Restrictions and Executive Compensation. Journal of Accounting Research, 41(3), 525–551. https://doi.org/10.1111/1475-679X.00115
Sawicki, J., & Shrestha, K. (2008). Insider Trading and Earnings Management. Journal of Business Finance & Accounting, 35(3–4), 331–346. https://doi.org/10.1111/j.1468-5957.2008.02075.x
Shiller, R. J. (1990). Market Volatility and Investor Behavior. The American Economic Review, 80, 58–62. https://www.jstor.org/stable/2006543
Tavakoli, M., McMillan, D., & McKnight, P. J. (2012). Insider trading and stock prices. International Review of Economics & Finance, 22(1), 254–266. https://doi.org/10.1016/j.iref.2011.11.004
Thaler, R. H., & Shefrin, H. M. (1981). An Economic Theory of Self-Control. Journal of Political Economy, 89, 392–406. https://doi.org/10.1086/260971
Võ Minh Long (2018). Ngưỡng cấu trúc vốn và giá trị doanh nghiệp. Tạp chí Khoa học Đại học Mở Thành phố Hồ Chí Minh - Kinh tế và Quản trị kinh doanh, 13(2), 34–50. https://doi.org/10.46223/HCMCOUJS.econ.vi.13.2.1614.2018
Wang, Q., & Zhang, J. (2015). Does individual investor trading impact firm valuation? Journal of Corporate Finance, 35, 120–135. https://doi.org/10.1016/j.jcorpfin.2015.08.001
Zhang, P., Gao, J., & Li, X. (2021). Stock Liquidity and Firm Value in the Time of COVID-19 Pandemic. Emerging Markets Finance and Trade, 57(6), 1578–1591. https://doi.org/10.1080/1540496X.2021.1898368
Barberis, N., Mukherjee, A., & Wang, B. (2016). Prospect Theory and Stock Returns: An Empirical Test. The Review of Financial Studies, 29(11), 3068–3107. https://doi.org/10.1093/rfs/hhw049
Barnea, A., Cronqvist, H., & Siegel, S. (2010). Nature or nurture: What determines investor behavior? Journal of Financial Economics, 98(3), 583–604. https://doi.org/10.1016/j.jfineco.2010.08.001
Batten, J., & Vo, X. V. (2019). Liquidity and firm value in an emerging market. The Singapore Economic Review, 64(02), 365–376. https://doi.org/10.1142/S0217590817470063
Betzer, A., & Theissen, E. (2009). Insider Trading and Corporate Governance: The Case of Germany. European Financial Management, 15(2), 402–429. https://doi.org/10.1111/j.1468-036X.2007.00422.x
Bhabra, G. S. (2007). Insider ownership and firm value in New Zealand. Journal of Multinational Financial Management, 17(2), 142–154. https://doi.org/10.1016/j.mulfin.2006.08.001
Bhattacharya, U. (2014). Insider Trading Controversies: A Literature Review. Annual Review of Financial Economics, 6(1), 385–403. https://doi.org/10.1146/annurev-financial-110613-034422
Carlton, D. W., & Fischel, D. R. (1982). The Regulation of Insider Trading. Stanford Law Review, 35, 857.
Cheng, L., Firth, M., Leung, T. Y., & Rui, O. (2006). The effects of insider trading on liquidity. Pacific-Basin Finance Journal, 14(5), 467–483. https://doi.org/10.1016/j.pacfin.2006.01.006
Cheng, Q., & Lo, K. (2006). Insider Trading and Voluntary Disclosures. Journal of Accounting Research, 44(5), 815–848. https://doi.org/10.1111/j.1475-679X.2006.00222.x
Choi, P. M. S., Choi, J. H., & Chung, C. Y. (2020). Do individual traders undermine firm valuation? Finance Research Letters, 36, 101567. https://doi.org/10.1016/j.frl.2020.101567
Chung, K. H., & Charoenwong, C. (1998). Insider Trading and the Bid-Ask Spread. Financial Review, 33(3), 1–20. https://doi.org/10.1111/j.1540-6288.1998.tb01379.x
Cornell, B., & Sirri, E. R. (1992). The Reaction of Investors and Stock Prices to Insider Trading. The Journal of Finance, 47(3), 1031–1059. https://doi.org/10.1111/j.1540-6261.1992.tb04004.x
Đặng Tùng Lâm, & Nguyễn Thị Minh Huệ (2017). Sở hữu cổ đông lớn và thanh khoản cổ phiếu trên Thị trường chứng khoán Việt Nam. Kinh tế và Phát triển, 241. https://ktpt.neu.edu.vn/tap-chi/so-241/muc-luc-562/so-huu-co-dong-lon-va-thanh-khoan-co-phieu-tren-thi-truong-chung-khoan-viet-nam.375661.aspx
Fang, V. W., Noe, T. H., & Tice, S. (2009). Stock market liquidity and firm value. Journal of Financial Economics, 94(1), 150–169. https://doi.org/10.1016/j.jfineco.2008.08.007
Ferris, S. P., & Park, K. (2005). Foreign ownership and firm value: evidence from Japan. In M. Hirschey, K. John, & A. K. Makhija (Eds.), Corporate Governance (Vol. 11, pp. 1–29). Emerald Group Publishing Limited. https://doi.org/10.1016/S1569-3732(04)11001-3
Fishman, M. J., & Hagerty, K. M. (1992). Insider Trading and the Efficiency of Stock Prices. The RAND Journal of Economics, 23(1), 106–122. https://www.jstor.org/stable/2555435
Glaser, M., & Weber, M. (2007). Overconfidence and trading volume. The Geneva Risk and Insurance Review, 32(1), 1–36. https://doi.org/10.1007/s10713-007-0003-3
Goergen, M., Renneboog, L., & Zhao, Y. (2019). Insider trading and networked directors. Journal of Corporate Finance, 56, 152–175. https://doi.org/10.1016/j.jcorpfin.2019.02.001
Haddock, D. D., & Macey, J. R. (1985). Coasian Model of Insider Trading. Northwestern University Law Review, 80, 1449. https://heinonline.org/HOL/LandingPage?handle=hein.journals/illlr80&div=46&id=&page=
Han, B. (2006). Insider Ownership and Firm Value: Evidence from Real Estate Investment Trusts. The Journal of Real Estate Finance and Economics, 32(4), 471–493. https://doi.org/10.1007/s11146-006-6963-8
Hanson, R. C., & Song, M. H. (1995). Managerial Ownership Change and Firm Value: Evidence from Dual-Class Recapitalizations and Insider Trading. Journal of Financial Research, 18(3), 281–297. https://doi.org/10.1111/j.1475-6803.1995.tb00567.x
Hatch, B. C., Johnson, S. A., Wang, Q. E., & Zhang, J. (2021). Algorithmic trading and firm value. Journal of Banking & Finance, 125. https://doi.org/10.1016/j.jbankfin.2021.106090
Huang, J., Xu, N., & Yu, H. (2020). Pollution and Performance: Do Investors Make Worse Trades on Hazy Days? Management Science, 66(10), 4455–4476. https://doi.org/10.1287/mnsc.2019.3402
Inaishi, R., Toya, K., Zhai, F., & Kita, E. (2010). Effect of Overconfident Investor Behavior to Stock Market. Journal of Advanced Computational Intelligence and Intelligent Informatics, 14, 661–668. https://doi.org/10.20965/jaciii.2010.p0661
Jaffe, J. F. (1974). Special Information and Insider Trading. The Journal of Business, 47(3), 410–428. https://www.jstor.org/stable/2352458
Jawed, M. S., & Kotha, K. K. (2020). Stock Liquidity and Firm Value: Evidence from a Policy Experiment in India. International Review of Finance, 20(1), 215–224. https://doi.org/10.1111/irfi.12200
Kahneman, D., & Tversky, A. (1979). On the interpretation of intuitive probability: A reply to Jonathan Cohen. Cognition, 7(4), 409–411. https://doi.org/10.1016/0010-0277(79)90024-6
Karpoff, J. M. (1986). A Theory of Trading Volume. The Journal of Finance, 41(5), 1069–1087. https://doi.org/10.1111/j.1540-6261.1986.tb02531.x
Khawaja, M. J., & Alharbi, Z. N. (2021). Factors influencing investor behavior: An empirical study of Saudi Stock Market. International Journal of Social Economics, 48(4), 587–601. https://doi.org/10.1108/IJSE-07-2020-0496
Kim, O., & Verrecchia, R. E. (1991). Trading Volume and Price Reactions to Public Announcements. Journal of Accounting Research, 29(2), 302–321. https://doi.org/10.2307/2491051
King, M., & Roell, A. (1988). Insider trading. Economic Policy, 3(6), 163–193. https://doi.org/10.2307/1344507
Lee, C. M. C., & Swaminathan, B. (2000). Price Momentum and Trading Volume. The Journal of Finance, 55(5), 2017–2069. https://doi.org/10.1111/0022-1082.00280
Leland, H. E. (1992). Insider Trading: Should It Be Prohibited? Journal of Political Economy, 100, 859–887. https://doi.org/10.1086/261843
Levine, R., Lin, C., & Wei, L. (2017). Insider Trading and Innovation. The Journal of Law and Economics, 60(4), 749–800. https://doi.org/10.1086/696384
Loomes, G., & Sugden, R. (1982). Regret Theory: An Alternative Theory of Rational Choice Under Uncertainty. The Economic Journal, 92(368), 805–824. https://doi.org/10.2307/2232669
Lorie, J. H., & Niederhoffer, V. (1968). Predictive and Statistical Properties of Insider Trading. The Journal of Law and Economics, 11, 35–53. https://doi.org/10.1086/466642
Marin, J. M., & Olivier, J. P. (2008). The Dog That Did Not Bark: Insider Trading and Crashes. The Journal of Finance, 63(5), 2429–2476. https://doi.org/10.1111/j.1540-6261.2008.01401.x
Masson, R. T., & Madhavan, A. (1991). Insider Trading and the Value of the Firm. The Journal of Industrial Economics, 39(4), 333–353. https://doi.org/10.2307/2098435
McConnell, J. J., Servaes, H., & Lins, K. V. (2008). Changes in insider ownership and changes in the market value of the firm. Journal of Corporate Finance, 14(2), 92–106. https://doi.org/10.1016/j.jcorpfin.2008.02.001
Modigliani, F., & Miller, M. H. (1958). The Cost of Capital, Corporation Finance and the Theory of Investment. The American Economic Review, 48, 261–297. https://www.jstor.org/stable/1809766
Nagy, R. A., & Obenberger, R. W. (1994). Factors Influencing Individual Investor Behavior. Financial Analysts Journal, 50(4), 63–68. https://doi.org/10.2469/faj.v50.n4.63
Nguyen, N. H., & Shiu, C.-Y. (2022). Stewardship, institutional investors monitoring, and firm value: Evidence from the United Kingdom. Journal of Multinational Financial Management, 64, 100732. https://doi.org/10.1016/j.mulfin.2022.100732
Oxelheim, L., & Randøy, T. (2003). The impact of foreign board membership on firm value. Journal of Banking & Finance, 27(12), 2369–2392. https://doi.org/10.1016/S0378-4266(02)00395-3
Phan Quỳnh Trang (2018). Corporate debt and investment with financial constraints: Vietnamese listed firms. Research in International Business and Finance, 46, 268–280. https://doi.org/10.1016/j.ribaf.2018.03.004
Reichman, N. (1993). Insider Trading. Crime and Justice, 18, 55–96. https://doi.org/10.1086/449222
Roll, R., Schwartz, E., & Subrahmanyam, A. (2009). Options trading activity and firm valuation. Journal of Financial Economics, 94(3), 345–360. https://doi.org/10.1016/j.jfineco.2009.02.002
Roulstone, D. T. (2003). The Relation Between Insider-Trading Restrictions and Executive Compensation. Journal of Accounting Research, 41(3), 525–551. https://doi.org/10.1111/1475-679X.00115
Sawicki, J., & Shrestha, K. (2008). Insider Trading and Earnings Management. Journal of Business Finance & Accounting, 35(3–4), 331–346. https://doi.org/10.1111/j.1468-5957.2008.02075.x
Shiller, R. J. (1990). Market Volatility and Investor Behavior. The American Economic Review, 80, 58–62. https://www.jstor.org/stable/2006543
Tavakoli, M., McMillan, D., & McKnight, P. J. (2012). Insider trading and stock prices. International Review of Economics & Finance, 22(1), 254–266. https://doi.org/10.1016/j.iref.2011.11.004
Thaler, R. H., & Shefrin, H. M. (1981). An Economic Theory of Self-Control. Journal of Political Economy, 89, 392–406. https://doi.org/10.1086/260971
Võ Minh Long (2018). Ngưỡng cấu trúc vốn và giá trị doanh nghiệp. Tạp chí Khoa học Đại học Mở Thành phố Hồ Chí Minh - Kinh tế và Quản trị kinh doanh, 13(2), 34–50. https://doi.org/10.46223/HCMCOUJS.econ.vi.13.2.1614.2018
Wang, Q., & Zhang, J. (2015). Does individual investor trading impact firm valuation? Journal of Corporate Finance, 35, 120–135. https://doi.org/10.1016/j.jcorpfin.2015.08.001
Zhang, P., Gao, J., & Li, X. (2021). Stock Liquidity and Firm Value in the Time of COVID-19 Pandemic. Emerging Markets Finance and Trade, 57(6), 1578–1591. https://doi.org/10.1080/1540496X.2021.1898368