Insider Trading and Voluntary Disclosures PDF Download

Author: Qiang Cheng
Publisher:
ISBN:
Category :
Languages : en
Pages : 51

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Book Description
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 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.

Author: Christopher F. Noe
Publisher:
ISBN:
Category :
Languages : en
Pages : 42

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Book Description
This paper investigates the association between voluntary disclosures and insider transactions (i.e. transactions made by managers in their own firms' shares). Specifically, insider transaction patterns are analyzed around 949 management earnings forecasts issued by 85 firms between July 1, 1979 and December 31, 1987. The findings show that the incidence of insider transactions decreases prior to management earnings forecasts and increases afterwords. Moreover, the findings show that the likelihood of an insider transaction occurring in the period following a management earnings forecast is related to empirical proxies for the possibility of a manager being privately informed. Overall, these findings are consistent with managers utilizing voluntary disclosures to bond themselves against exploiting private information for insider transaction purposes. Keywords: Information asymmetry; Managerial opportunism; Insider transactions; Management earnings forecasts.

Author: M. Todd Henderson
Publisher:
ISBN:
Category :
Languages : en
Pages : 33

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Book Description
Can voluntary disclosure be used to enhance insiders' strategic trade while providing legal cover? We investigate this question in the context of 10b5-1 trading plans. Prior literature suggests that insiders lose strategic trade value if their planned trades are disclosed. But disclosure might enhance strategic trade because courts can only consider publicly available evidence from defendants at the motion to dismiss phase of trial. This practice can enhance legal protection for firms that disclose planned trades, especially those disclosing detailed information. Consistent with increased legal protection, we find that voluntary disclosure of planned trades increases with firm litigation risk and potential gains to insiders' trades. We also find that insider sales and abnormal returns are higher for disclosed plans, especially those that articulate specific plan details. This suggests that voluntary disclosure, which is conventionally thought to reduce information asymmetries, can create legal cover for opportunistic insider trading.

Author: Klaus J. Hopt
Publisher: Springer
ISBN:
Category : Business & Economics
Languages : en
Pages : 40

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Book Description
The general problems regarding the timely topic of regulation of insider dealing and timely disclosure of new facts are discussed in a comparative fashion in this lecture in the light of the EC Directive of 13 November 1989 And The German Securities Exchange Act. In particular, attention is given to efforts to harmonize German law with the EC Directive.

Author: Eli Amir
Publisher:
ISBN:
Category :
Languages : en
Pages : 37

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Book Description
We examine the relation between insider trading and corporate disclosure of cyberattacks. We distinguish between companies that voluntarily disclosed cyberattacks and those that withheld information on the incidents, and parties outside the attacked company later discovered the incident. We find insiders sell stocks in cases their firm withholds information on the cyberattack from investors. However, in firms that voluntarily disclosed information about the attack, we find insiders are less likely to sell shares when information is still private. We also find that managers are less likely to withhold and sell stocks in states that require companies to disclose data breaches to the state attorney general. The requirement to disclose a breach to the state attorney marks the breach as a significant event, on which insiders are less likely to trade before disclosure because of higher litigation risk. When disclosure requirements are less strict and disclosure is virtually voluntary, insiders trade after withholding information on the cyberattack. The results demonstrate the relation between disclosure and insider trading, and in particular show managers are more (less) likely to trade on private information that they know the company will withhold (disclose).

Author: M. Todd Henderson
Publisher:
ISBN:
Category : Disclosure of information
Languages : en
Pages : 42

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Book Description
This study examines implications of 'scienter disclosure' through an analysis of voluntary disclosures regarding insiders' Rule 10b5-1 trading plans. Prior theory suggests that disclosing informed traders' intent to trade is not strategically advantageous, but this theory does not account for litigation risk reduction resulting from disclosure. Legal precedent regarding Rule 10b5-1 affords legal risk reduction to disclosure, therefore voluntary disclosure offers an interesting theoretical test. Evidence indicates that Rule 10b5-1 disclosure increases with firm litigation risk and insider strategic trade potential. Evidence also indicates that Rule 10b5-1 disclosure is associated with greater abnormal returns to insiders' trades, especially for firms disclosing specific plan details. This evidence suggests that legal risk can compel firms to depart from a non-disclosure strategy and that disclosure might enhance strategic trade. Evidence also suggests that non-disclosing firms are least associated with strategic trade; therefore proposed mandatory Rule 10b5-1 disclosure might not mitigate strategic behavior.

Author: Seong Jin Ahn (Accounting professor)
Publisher:
ISBN:
Category : Electronic dissertations
Languages : en
Pages : 160

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Book Description
This dissertation is comprised of three empirical essays relating to audit market, SEC enforcement actions, and voluntary disclosure. The first essay investigates the effects of auditor office location on client and auditor surplus. Using a two-sided matching market model, I find that, while both clients and auditors bear the costs of geographic distance, auditors disproportionately bear costs. Although distance exerts costs on clients, clients incur distance costs to gain auditor expertise. Next, I examine how the stickiness of audit office locations affects equilibrium audit market matches. The immobility of audit office locations results in a market-wide surplus loss of 1.6%, and leaves 8% of clients worse off. In addition, by aggregating individual client-auditor surplus at the MSA and state level, I find that in underserved regions, clients are more likely to choose their second-best auditors, and auditors are more likely to extract rents from clients. Finally, relocating audit offices in overserved regions, such as Detroit and Cincinnati, to underserved regions, such as Austin and Houston, improves market-wide surplus, and therefore, leaves clients and auditors in both regions better off. Overall, this paper contributes to the literature by highlighting how an audit market friction (stickiness in audit office location) affects surplus and auditor matches. The second essay examines whether SEC insider trading charges deter illegal insider trading activity among non-targeted insider employed by firms in the same industry. The second essay is co-authored with Jared Jennings. Using a hand-collected sample of SEC insider trading charges, we find that non-targeted insiders at peer firms execute less profitable non-routine purchases following the disclosure of the SEC insider trading charges. We find that the insider non-routine purchase results are concentrated among non-targeted insiders at peer firms that are geographically closer to the targeted firm. We find no consistent evidence that non-targeted insiders at peer firms execute less profitable non-routine sales after SEC insider trading charges are filed. These results provide evidence on the effectiveness of SEC enforcement actions on deterring questionable insider trading activities. Lastly, the third essay examines the implications of unbundled management forecast news for future earnings and returns. This third essay is co-authored with Zachary Kaplan and Salman Arif. We find that positive (negative) management forecast news predicts higher (lower) unexpected earnings over the upcoming year, but this positive predictive relation flips to negative over the following year. Further, while stock returns initially drift in the same direction as the news in the management forecast, returns begin to reverse beginning six months after the forecast and this reversal continues over the following two years. We conduct several analyses which suggest that return reversals occur because investors over-extrapolate the news from management forecasts. First, we find that positive (negative) management forecast news leads to analyst earnings forecasts that are excessively optimistic (pessimistic). Second, we find that management forecasts which are less persistent (e.g. forecasts by firms with higher earnings volatility and forecasts that convey negative news) are associated with larger return reversals. Third, we find that increasing the frequency or providing forecasts for a number of horizons mitigates the return reversals. Overall, our findings contribute to our understanding of the information conveyed by management forecasts and suggest that market participants overreact to unbundled management forecasts.

Author: Paul U. Ali
Publisher: CRC Press
ISBN: 1420074032
Category : Business & Economics
Languages : en
Pages : 452

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Book Description
Insider trading has long been considered an endemic feature of the world's financial markets. It is unsurprising that the recent growth in mergers and acquisitions worldwide has been accompanied by a growth in insider trading, on a scale not witnessed since the 1980's takeovers boom. Insider Trading: Global Developments and Analysis brings together the latest law and finance research on insider trading. It provides expert coverage on the established US, European, and Asia-Pacific securities markets, as well as the key emerging markets of Brazil and the greater China region. Providing high interest and up-to-date content, the book features several recent cases, including that of Martha Stewart.

Author: John L. Campbell
Publisher:
ISBN:
Category :
Languages : en
Pages :

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Book Description
Regulation Fair Disclosure (Reg FD) Form 8-K filings provide a venue where managers release information to the market as a whole that they designate as being material. Using this setting, we study trading patterns immediately prior to the public disclosure of material information. We offer three main results. First, using both intra-day and daily trading data, we find abnormal trading volume of 21 percent (13 percent) in the hour (day) prior to the public disclosure, respectively. Second, we find that this pre-disclosure abnormal trading volume is concentrated in firms that are smaller, have more growth opportunities, issue fewer voluntary disclosures, and have weaker external monitoring. Finally, we find that this pre-disclosure volume is concentrated in subsamples in which the information relates to a firm's material contracts, a firm holds investor/analyst conferences, and there is insider trading activity in a firm's shares. Our results do not concentrate in a small number of firms or industries, and do not appear to be explained by the form through which managers first release the material information (e.g., Form 8-K, press release, website posting, or social media). Our results are also robust to controlling for the firm's other filings and peer filings that occur around the disclosure. Overall, the trading patterns we document may show that, inconsistent with the spirit of Reg FD, a subset of investors trade on information managers deem material prior to its broad, public release.

Author: Ming Huang
Publisher:
ISBN:
Category :
Languages : en
Pages : 45

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Book Description
Managements (quot;insidersquot;) of many corporations, especially small or newly public firms, invest considerable resources in investor relations such as voluntary disclosures and courting analyst coverage. We develop a model to explore the role of such costly investments and the incentives of insiders to undertake them. In contrast to existing theories, we point out that insiders may undertake such investments not necessarily to improve the share price, but to enhance the liquidity of their block of shares in case they have to sell their equity stakes for liquidity reasons. This leads to a divergence of interest between insiders and dispersed outside shareholders regarding investor relations. The costs of investor relations are paid by all shareholders, though dispersed shareholders care little about market liquidity because of their small holdings. Our model predicts that the demographics of insiders (e.g. liquidity needs, size of equity stakes) are determinants of the extent of investor relations across firms.