Insider Trading and Institutional Holdings in Seasoned Equity Offerings

Abstract

We investigate three issues about the impact of insider trades and institutional holdings on seasoned equity offerings (SEOs). First, we test how insider trades affect the trading behavior of institutional investors in SEOs. Second, we test whose trading behavior, either insiders or institutional investors, has greater explanatory power for the performance of SEO firms after issuing new stocks. Third, we analyze the industry-wide spillover effects of insider trades and institutional holdings. Empirically, we find that insiders and institutional investors of SEO firms may utilize similar information in their transactions because insider trades induce similar trading behavior for institutional investors. In addition, insider trades, relative to institutional holdings, have greater explanatory power for SEO firm’s long-term performance. Finally, compared with insider trades, institutional holdings have a more significant spillover effect in the industry of SEO firms.