Insider trading and shareholder investment horizons |
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| Affiliation: | 1. Hong Kong University of Science and Technology, Hong Kong;2. Singapore Management University, Singapore;3. Hong Kong Polytechnic University, Hong Kong;1. Darla Moore School of Business, University of South Carolina, Columbia, SC 29208, United States;2. School of Business, University of Kansas, Lawrence, KS 66045, United States;3. Fowler College of Business, San Diego State University, San Diego, CA 92182, United States;1. Department of Accounting, Feng Chia University, No.100, Wenhwa Road, Seatwen, Taichung 40724, Taiwan, ROC;2. Department of Accounting, National University of Singapore, 15 Kent Ridge Drive, Singapore 119245, Singapore;1. College of Business, Korea Advanced Institute of Science and Technology, 85 Hoegiro, Dongdaemun-gu, Seoul 130-722, Republic of Korea;2. Department of Finance, David Eccles School of Business, University of Utah, 1655 East Campus Center Drive, Salt Lake City, UT 84112-9301, USA;3. World Bank Group Singapore Office, World Bank, 10 Marina Boulevard, 018983, Singapore;4. Monetary Authority of Singapore, 10 Shenton Way, MAS Building, 079117, Singapore |
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| Abstract: | 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. |
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