The risk of signalling failure and managers’ trading before self‐tender stock repurchases

Outlines previous research on the signalling power of stock repurchases and insider trading activity before stock repurchases. Examines data from a sample of self‐tender stock repurchases used by Comment and Jarrell (1991) to examine the relationship between managers’ trading activity prior to the repurchase announcement and their wealth risk of false signalling. Shows that they buy significantly more shares before at‐risk repurchase announcements (i.e. those where their proportionate ownership will increase and the minimum share price is more than two per cent above the closing market price four days before the announcement) than before not‐at‐risk announcements, and sell less. Supports Comment and Jarrell’s conclusion that signalling strength is greater when managers face a personal risk of false signalling.