Managerial actions and stock transactions during financial distress: Some empirical evidence

Should the current managers remain in control of the firm during financial distress? We address this issue by examining whether managers who take value-maximizing actions also refrain from abnormal selling of their own shares in the firm. Our empirical results show that managers in the action firms do not engage in abnormal selling even during periods of frequent earnings losses. These managers exhibit higher net purchases than the nonaction managers. Thus, trading behavior of the managers and the actions taken during poor performance both appear to be consistent with stockholder interests. Copyright Springer 2005