Do Managers’ Collective Purchases Signal The Undervaluation Of Enterprise Value

With the completion of the split share reform, manager gradually become an important trader in the securities market. Managers trading in the securities market is becoming more common. According to the Wind data from November 25th to January 1st,2014, there are 34% companies eligible for manager purchases.The number of manager purchases is up to 1098 times. In the case of asymmetric information, it may be different between market value and enterprise value. The information superiority help managers assess enterprise value and outlook more accurate and identify deviations between market price and enterprise value faster. Therefore, the changes of the managerial ownership can signal the changes of enterprise value.The market is generally considered that purchases reflects undervaluation of enterprise value while reduction reflects overvaluation. Now scholars had a certain depth study about value effect of managers purchases, but did not get a unified conclusion. Manager purchases include the individual managers purchases and collective purchases. Media often emphasized the managers collective purchases. But current study combine individual purchases and collective purchases. Therefore, this paper discuss whether there is a different value effect between individual purchases and collective purchases and do the two kinds of purchases signal enterprise value.This paper examines the signal transmission effect of the managers collective purchases on enterprise value. Based on the data of 2009-2012 mangers’ collective purchases listed companies as research samples, we find that:(1) Mangers’ individual purchases and collective purchases are different.(2) The value effect of mangers’ purchases is not stable. In the short term, manages collective purchases sent out a more stable signal about undervaluation of enterprise value. In the long term,The value effect of mangers’ individual purchases and collective purchases are not stable.This paper has important reference value to the company’s financial theory and practice related to enterprise,investors and government. Theoretical significance of this paper is highlighted in the context of transition economies, mangers’ collective purchases signal the undervaluation of enterprise value. The paper expand the research perspectives and provides new evidence on insider trading from emerging market. Practical significance of this is that, under asymmetric information, managers of listed companies should have a strengthen awareness of collective purchases and take advantage of the signaling function of mangers’ collective purchases. It will help stabilize the stock price and establish a good corporate image. Regulatory authorities should further refine and improve policies and regulations about manager’ holdings, enhance the market value of the listing corporation, and to make it an effective governance mechanism for listing corporation. For investors, mangers’ purchases have a high predictive value about enterprise value. And it can provide an important reference for the timing and stock selection.