Abstract:
While stock and bond markets are closely linked, how bond investors view insider trading in the stock market and whether secondary corporate bond market pricing is affected by insider trading have not been thoroughly investigated. This paper empirically examines the impact of insider purchase and sale transactions on secondary corporate bond market pricing using Shanghai and Shenzhen A-share listed companies as samples. The research finds that insider selling increases corporate bond credit spreads, while insider buying has no significant impact on credit spreads. Mechanism tests indicate: (1) Insider selling may transmits signals of overvaluation of the company's share price to the market and intensifies stock price volatility. Especially when the share price falls greatly, bond investors may perceive deterioration in company fundamentals and increased bond default probability, demanding higher risk premiums; (2) Bond investment returns are limited to contractually agreed principal and interest, resulting in lower risk tolerance among bond investors, higher sensitivity to bad news compared to good news, and bond prices that capture negative information more quickly. Heterogeneity tests show that the impact of insider selling on corporate bond credit spreads is more pronounced in environments with greater uncertainty and when future cash flows show decreasing trends, while it is relatively less significant when board independence is stronger and corporate bond liquidity is better. Further research finds that the more profits insiders gain from selling, the greater the increase of corporate bond credit spread; compared to routine insider selling, opportunistic insider selling has a greater impact on corporate bond credit spreads. This paper enriches research on secondary corporate bond market pricing and provides references for further improving insider trading regulation.
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