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Article
Insider trading and voluntary disclosures
Journal of Accounting Research
  • Qiang CHENG, Singapore Management University
  • Kin LO, University of British Columbia
Publication Type
Journal Article
Version
acceptedVersion
Publication Date
12-2006
Abstract

We hypothesize that insiders strategically choose disclosure policies and the timing of their equity trades to maximize trading profits, subject to the litigation costs associated with disclosure and insider trading. Accounting for endogeneity between disclosures and trading, we find that when managers plan to purchase shares, they increase the number of bad news forecasts to reduce the purchase price. In addition, this relation is stronger for trades initiated by chief executive officers than for those initiated by other executives. Confirming this strategic behavior, we find that managers successfully time their trades around bad news forecasts, buying fewer shares beforehand and more afterwards. We do not find that managers adjust their forecasting activity when they are selling shares, consistent with higher litigation concerns associated with insider sales. Overall, our evidence suggests that insiders do exploit voluntary disclosure opportunities for personal gain, but only selectively, when litigation risk is sufficiently low.

Discipline
Identifier
10.1111/j.1475-679X.2006.00222.x
Publisher
Wiley
Copyright Owner and License
Authors
Creative Commons License
Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International
Additional URL
https://doi.org/10.1111/j.1475-679X.2006.00222.x
Citation Information
Qiang CHENG and Kin LO. "Insider trading and voluntary disclosures" Journal of Accounting Research Vol. 44 Iss. 5 (2006) p. 815 - 848 ISSN: 0021-8456
Available at: http://works.bepress.com/qiang-cheng/36/