Insider trading behavior prior to Chapter 11 bankruptcy announcements

This study uses non-parametric methods to examine the difference in trading behavior between Chapter I I bankruptcy firms and non-bankruptcy firms tra ded on New York Stock Exchange (NYSE)/American Stock Exchange (AMEX) exchan ges. It documents new evidence about the anomaly of insider purchases rathe r than sales prior to Chapter I I bankruptcy announcements. Insiders of Cha pter I I bankruptcy firms purchase significantly fewer shares than insiders of the control firms before the bankruptcy announcement. Although insider trading volume declines long before the announcement, the decline is statis tically significant only during the 3-month period before the announcement. The study, however, finds no significant difference in trading behavior be tween insiders of firms that ceased to trade on and those that continue to trade on the NYSE/AMEX within 5 years after the bankruptcy announcements. ( C) 2001 Elsevier Science Inc. All rights reserved.