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The factors affecting illegal insider trading in firms with violations of GAAP

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  • Thevenot, Maya

Abstract

Consistent with the economics of crime approach, this paper finds that insider selling is decreasing in the perceived costs of potential private and public enforcement upon discovery of GAAP misstatements, and increasing in managerial private benefits as measured by the market reaction to the misstatement announcement. Additionally, insiders at fraud firms sell more on average, although the intensity of their trades is less likely to be associated with the magnitude of their private information. Further analysis suggests that managers perceive a higher cost of public enforcement in the post-Enron period.

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  • Thevenot, Maya, 2012. "The factors affecting illegal insider trading in firms with violations of GAAP," Journal of Accounting and Economics, Elsevier, vol. 53(1), pages 375-390.
    • Handle: RePEc:eee:jaecon:v:53:y:2012:i:1:p:375-390
    DOI: 10.1016/j.jacceco.2011.08.002
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    Cited by:

    1. Lorne N. Switzer & Jun Wang, 2017. "An event based approach for quantifying the effects of securities fraud in the IT industry," Information Systems Frontiers, Springer, vol. 19(3), pages 457-467, June.
    2. Guanming He, 2023. "How do insider trading incentives shape nonfinancial disclosures? Evidence from product and business expansion disclosures," Review of Quantitative Finance and Accounting, Springer, vol. 60(1), pages 147-194, January.
    3. Viet Phuong Le & Ann‐Ngoc Nguyen & Andros Gregoriou, 2024. "Insider trading, gender diversity within the board room, CEO pay gap, and stock price crash risk," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(2), pages 1378-1400, April.
    4. Guanming He & Helen Mengbing Ren & Richard Taffler, 2021. "Do corporate insiders trade on future stock price crash risk?," Review of Quantitative Finance and Accounting, Springer, vol. 56(4), pages 1561-1591, May.
    5. Fich, Eliezer M. & Parrino, Robert & Tran, Anh L., 2023. "When and how are rule 10b5-1 plans used for insider stock sales?," Journal of Financial Economics, Elsevier, vol. 149(1), pages 1-26.
    6. Agrawal, Anup & Cooper, Tommy, 2015. "Insider trading before accounting scandals," Journal of Corporate Finance, Elsevier, vol. 34(C), pages 169-190.
    7. Ormazabal, Gaizka, 2018. "The Role of Stakeholders in Corporate Governance: A View from Accounting Research," CEPR Discussion Papers 12775, C.E.P.R. Discussion Papers.

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    More about this item

    Keywords

    Economics of crime; Insider trading; Enforcement risk; Restatements; Fraud;
    All these keywords.

    JEL classification:

    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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