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We examine information content and related insider trading around private in-house meetings between corporate insiders and investors and analysts. We use a hand-collected dataset of approximately 17,000 private meeting summary reports of Shenzhen Stock Exchange firms over 2012–2014. We find that these private meetings are informative and corporate insiders conducted over one-half of their stock sales (totaling $8.7 billion) around these meetings. Some insiders time their transactions and earn substantial gains by selling (purchasing) relatively more shares before bad (good) news disclosures while postponing selling (purchasing) when good (bad) news is to be disclosed in the meeting. Finally, we conduct a content analysis of published meeting summary reports and find that the tone in these reports is associated with stock market reactions around (1) private meetings themselves, (2) subsequent public release of private meeting details, (3) subsequent earnings announcements and (4) future stock performance.     

Are corporate managers savvy about their stock price? Evidence from insider trading after earnings announcements

We find that insiders trade as if they exploit market underreaction to earnings news, buying (selling) after good (bad) earnings announcements when the price reaction to the announcement is low (high). We also find that insider trades attributable to public information about earnings and the price reaction generate abnormal returns. By demonstrating that managers spot market underreaction to earnings news, our results imply that managers are savvy about their company’s stock price.     

Insider Trading and Corporate Information Transparency

Our study examines the relation between insider trading and corporate information transparency. We find a negative relation between firms’ information transparency and the economic significance of insider trading, including the amount of insider purchase and sale and the profitability of insider transactions. We also find a negative relation between information transparency and stock price reaction to news of insider trading, which suggests that increases in information transparency preempt insiders’ private information. Our study provides evidence consistent with firms’ transparency-enhancing activities decreasing information asymmetry between insiders and investors by revealing insiders’ private information to investors in a timely manner.     

If It's Good for the Firm,It's Good for Me: Insider Trading and Repurchases Motivated by Undervaluation

My findings suggest that information inherent in insider trading can be used to identify undervalued repurchasing firms. I examine the relation between insider trading and the performance of open market repurchase (OMR) firms. I show that firms with high net insider buying prior to OMR announcements not only earn abnormal stock returns in both the short‐ and long‐run, but also exhibit better operating performance. Overall, the evidence is consistent with insiders timing their trades prior to OMR announcements.     

Sell-side analyst heterogeneity and insider trading

This study explores insider trading patterns under different earnings surprises. After controlling for stock market liquidity and earnings announcements returns, we show that insiders sell more aggressively depending on the heterogeneity of analysts whose EPS forecasts are met or beaten to camouflage their trades. Specifically, insiders sell more shares of their company sooner after the publication of earnings when top analysts' forecasts are met or beaten. Consistent with the informed trading literature, insiders strategically select these moments because the stock price impact is low and the legal scrutiny of their trades is minimal. To support this result, we employ an exogenous drop in firms' analyst coverage due to the closure or merger of brokerage houses. Furthermore, in line with the camouflage incentives, by selling after top analysts' forecasts are met or beaten, stock prices adjust slowly to insider trades. Finally, we show that the incentives of insiders to hide their trades are concentrated in opportunistic insiders and members of the top management team, who are more likely to bear the costs of selling shares after positive news.     

Insider trading in takeover targets

We examine open market stock trades by registered insiders in about 3700 targets of takeovers announced during 1988–2006 and in a control sample of non-targets, both during an ‘informed’ and a control period. Using difference-in-differences regressions of several insider trading measures, we find no evidence that insiders increase their purchases before takeover announcements; instead, they decrease them. But while insiders reduce their purchases below normal levels, they reduce their sales even more, thus increasing their net purchases. This ‘passive’ insider trading holds for each of the five insider groups we examine, for all three measures of net purchases, and is more pronounced in certain sub-samples with less uncertainty about takeover completion, such as friendly deals, and deals with a single bidder, domestic acquirer, or less regulated target. The magnitude of the increase in the dollar value of net purchases is quite substantial, about 50% relative to their usual levels, for targets' officers and directors in the six-month pre-announcement period. Our finding of widespread profitable passive trading by target insiders during takeover negotiations points to the limits of insider trading regulation. Finally, our finding that registered insiders of target firms largely refrain from profitable active trading before takeover announcements contrasts with prior findings that insiders engage in such trading before announcements of other important corporate events, and points to the effectiveness of private over public enforcement of insider trading regulations.     

Early Movers Advantage? Evidence from Short Selling during After‐Hours on Earnings Announcement Days

We examine short sellers’ after‐hours trading (AHT) following quarterly earnings announcements released outside of the normal trading hours. Our innovation is to use the actual short trades immediately after the announcements. We find that on these earnings announcement days, there is significant shorting activity in AHT relative to shorting activity both during AHT on nonannouncements days and during regular trading sessions around announcements. Short sellers who trade after‐hours on announcement days earn an excess return of 0.82% and 1.40% during before‐market‐open (BMO) and after‐market‐close (AMC)sessions, respectively. The magnitude of these returns increases to 1.48 (3.92%) for BMO (AMC) earnings announcements with negative surprise. We find that the reactive short selling during AHT has information in predicting future returns. Short sellers’ trades have no predictive power if they wait for the market to open to trade during regular hours. In addition, we find that the weighted price contribution during AHT increases with an increase in after‐hours short selling. Overall, our results suggest that short sellers in AHT are informed. Our findings remain robust using alternative holding periods and after controlling for macroeconomic news announcements during BMO sessions.     

Insider trading and shareholder investment horizons

This paper examines the effects of shareholder investment horizons on insider trading. We find that insiders are less likely to trade on private information and the profitability of insider trades is lower when shareholder investment horizons are longer. We further examine two channels through which shareholders with longer investment horizons can impede insider trading: direct monitoring and better information environment. Consistent with the direct monitoring channel, we show that insiders in firms with longer shareholder investment horizons are more likely to shift trades from the month right before earnings announcements to the month right after earnings announcements. Moreover, the impact of investment horizons are stronger in firms with higher ex ante litigation risk, with lower corporate governance quality, and that are not targets of hedge fund activists. Consistent with the information environment channel, we show that longer shareholder investment horizons increase the frequencies of information disclosure and insiders in firms with longer shareholder investment horizons are more likely to trade in an isolated manner rather than in sequences.     

Why do insiders trade? Evidence based on unique data on Swedish insiders

In this paper, we examine if corporate insiders have other motives for trading besides exploitation of private information. Our results show that insiders’ portfolio re-balancing objectives, tax considerations and behavioral biases play the most important role in their trading decisions. We also find that insiders who have allocated a great (small) proportion of their wealth to insider stock sell more (less) before bad news earnings disclosures. Finally, insider selling is informative for future returns among those insiders who have the greatest proportion of wealth allocated to insider stocks.     

Are trading bans effective? Exchange regulation and corporate insider transactions around earnings announcements

There is considerable controversy on the role of corporate insider trading in the financial markets. However, there appears to be a consensus view that some form of regulation concerning their activities should be imposed. One such constraint involves a trading ban in periods when corporate insiders are expected to be advantaged vis-à-vis the information flow. This paper directly tests whether constraints of this kind are effective in curtailing insider activity through a study of the trading characteristics of UK company directors. The London Stock Exchange Model Code (1977) imposes a two-month close period prior to company earnings announcements. We find that although the close period affects the timing of director trades, it is unable to affect their performance or distribution. Directors consistently earn abnormal returns irrespective of the period in which they trade. They tend to buy after abnormally bad earnings news and sell after abnormally good earnings news. Moreover, there are systematic differences in the trading patterns of directors surrounding interim and final earnings announcements. It appears that many corporate insiders have private information and exploit this in their trading activities. As a result, one can conclude that trading bans do not impose significant opportunity costs on the trading of corporate insiders.     

The Persistence of Opportunistic Insider Trading

We study the drivers of persistent insider trading profitability by examining the trades of insiders whose past trades have been profitable. We find that the current transactions of these persistently profitable (PP) insiders better predict firm performance than those of other insiders. The relative abnormal performance is more pronounced for trades of insiders who are managers rather than large shareholders or unaffiliated insiders and for trades in firms with weaker governance and greater information asymmetry. The trades of PP insiders also better predict earnings surprises, major corporate news, and analyst revisions. Collectively, these results indicate that PP insider transactions provide valid signals regarding future firm performance and that persistence in profitability is driven by informational advantages.     

Trading volume in options and common stock around quarterly earnings announcements

This study examines trading in call and put options around quarterly earnings announcements and investigates whether the existence of these options affects the common stock trading volume response to these announcements. We find that the options trading volume reaction to earnings announcements is larger than the corresponding reaction in common stock. Consistent with the idea that options provide an alternative vehicle for trading on information, the existence of these options lowers the level of trading in common stock. Options also appear to offer investors an alternative method of taking short positions, as shown by the symmetric stock market trading volume reaction to good versus bad news for firms with listed options. In contrast, firms without listed options exhibit a larger trading volume response to good news than to bad news of similar magnitude.     

Insider-trading,discretionary accruals and information asymmetry

Using US data for the period from 2004 to 2012 and alternative discretionary accruals measures, we examine whether insiders manipulate earnings in an asymmetric information environment to profit from their informed trades, and whether the intervening information environment influences the relationship between earnings management and insider trading. We show that insider trading dominated by sell trades has a positive association with discretionary accruals. The incremental effect of information asymmetry as well as the interaction with insider trading is also prevalent in this relation, confirming the moderating effect of asymmetric information. Further, we show that the active involvement of some key insiders in high discretionary accruals is for personal benefit more in growth firms than in value firms. Our results also suggest that earnings management allows for insiders’ opportunistic, rather than routine, buy and sell trades. Our findings highlight that regulators should oversee and scrutinise both insider trading and earnings management to mitigate the risk of the opportunistic behaviour of insiders to avoid future corporate scandals.     

Asymmetric trading by insiders – comparing abnormal returns and earnings prediction in Spain and Australia

This paper examines whether the ‘external governance’ imposed by comparative financial accounting standards reduces the trading advantage of insiders. We do this by directly comparing insider trading returns and insider’s ability to predict future earnings from accruals in Spain and Australia. Results show higher excess returns and greater prediction of future earnings from conditioned insider trading in Australia that is then utilized by financial analysts to lower forecast errors – particularly in contrarian‐based accruals trading. Possible explanations include: (i) a high asymmetric quality for market‐based accruals, (ii) information transfer from informed insiders to uninformed insiders and financial analysts and (iii) a more timely dissemination of financial information in Spain through different ownership and governance structures.     

卖空者与内幕交易——来自中国证券市场的证据

本文研究上市公司内部人减持、年报、诉讼、分析师评级、停复牌以及高送转等重大公告前后卖空交易行为的变化,系统考察卖空者是否参与内幕交易以及何种因素影响卖空者参与内幕交易,发现卖空率较高的股票具有较低的未来收益,表明卖空者拥有信息优势,属知情交易者;卖空者拥有非常精确的择时交易能力,在重大利空公告前显著增加卖空量,而在利好公告前则显著减少卖空头寸,表明卖空者作为知情交易者的信息优势源自内幕消息;公司内、外部投资者的信息不对称程度越低或公司所在地的法治水平越高,卖空者参与内幕交易的行为就越少。因此,监管机构应密切关注公司重大消息发布前后卖空量的异常变动,同时,完善信息披露规则、健全证券分析师制度并强化法律法规的执行力度,才能有效防范卖空者参与内幕交易。     

Asymmetric information consolidation and price discovery: Inferring bad news from insider sales

Due to the paucity of sources of negative firm‐specific information, US capital markets have more difficulty identifying and incorporating bad news into stock prices than they do good news. Even though insider selling is a potentially important proxy for undisclosed bad news, researchers have difficulty ex ante identifying information‐based sales due to an inability to separate liquidity‐motivated from information‐based insider trades. We hypothesize that when insiders in multiple firms sell shares of one firm in which they are insiders and at the same time buy shares of other insider portfolio firms, the sale is more likely to be information‐based, since the proceeds are reinvested. Conversely, when an insider sells one firm without purchasing others or sells multiple insider firms the sale is likely liquidity‐motivated. We find that insider sales identified as information‐based using this algorithm are followed by significant negative abnormal returns. Information‐based sales are also more likely to be associated with delistings, earnings declines and earnings restatements. Analysts are also more likely to revise their earnings forecasts downwards for these firms. It is thus possible to ex ante identify insider sales with information content. Our results will be of interest to investors and also to regulators designing insider trading rules.     

Insider Trading and Corporate Governance: The Case of Germany

We analyse transactions by corporate insiders in Germany. We find that insider trades are associated with significant abnormal returns. Insider trades that occur prior to an earnings announcement have a larger impact on prices. This result provides a rationale for the UK regulation that prohibits insiders from trading prior to earnings announcements. Both the ownership structure and the accounting standards used by the firm affect the magnitude of the price reaction. The position of the insider within the firm has no effect, which is inconsistent with the informational hierarchy hypothesis.     

Predicting earnings in a poor information environment

Financial intermediaries, such as analysts, play an important role in providing information to investors. However, a large segment of the market (about 39% of CRSP firms between 1992 and 2009) is not served by financial analysts, leaving investors in a poor information environment. In this paper, we examine whether other publicly available information signals, such as insider trades, institutional holdings, and firms’ stock repurchases, can be used to predict information about earnings for these firms. We find that CFOs’ trading decisions are associated with new information contained in the annual earnings reports for firms with no or scant analyst coverage. In contrast, for firms with multiple analyst coverage, insider trading decisions are not predictive of new information in earnings reports. Our results suggest that some public information signals, such as insider trades, can be used to alleviate the poor information environment faced by investors. However, the market may not have fully priced the information contained in these signals.     

Is there information content from insider trading activities preceding earnings and dividend announcements in Hong Kong?

This study examines whether insiders (directors) exploit information advantage of their firms by trading stocks before the simultaneous earnings and dividend announcements in Hong Kong. Our findings show that there are significant net-insider-buying activities before the announcements of good news ('Earnings-Dividend Increase') and significant net-insider-selling activities before bad news ('Earnings-Dividend Decrease' and 'Earnings Decrease-Dividend Zero'). In addition, our regression results provide some support for the hypothesis that there is a predictive relation between pre-event insider trading activity and the abnormal return of the announcements.     

Insider trading in loss firms

This study investigates whether insiders in loss firms trade their company stock differentially around new loss and loss reversal earnings announcements. Research suggests that the likelihood of litigation influences managers' stock trading decisions prior to material events. I hypothesize and find that insiders reduce their net stock sales in a monotonic manner before a new loss announcement presumably to avoid improper trading allegations before bad news. This decrease is more pronounced if the new loss is the start of a multiple loss sequence. In contrast, there is no significant change in net trading patterns in the quarters prior to a loss reversal announcement irrespective of whether the loss reversal is the start of a single profit or multiple profit sequence indicating that insiders seem less concerned about legal implications when trading before good news. The results suggest that insiders in loss firms perceive asymmetric litigation risks to trading stock in the quarters before bad news relative to good news and act accordingly.