Insider Trading Around Convertible Security Calls

Abstract

This study examines the nature of insider trading of common stock around conversion-forcing calls of convertible securities.  Managers of call firms significantly increase their frequency of stock sales after call announcements.  Also after the call, substantially fewer call firms are classified as net buyers and a significantly greater number of call firms are classified as net sellers.  This evidence suggests that managers alter their trading behavior as though calls are associated with negative information about their firms' prospects.