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Do corporate insiders trade on future stock price crash risk?

Author

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  • Guanming He

    (Durham University)

  • Helen Mengbing Ren

    (University of Liverpool Management School, University of Liverpool)

  • Richard Taffler

    (University of Warwick)

Abstract

We explore whether firm managers trade on future stock price crash risk. This depends on managers’ ability to assess future crash risk, and on whether the expected payoff is greater than the expected costs associated with potential reputation loss and litigation risk. We find that insider sales are positively associated with future crash risk, which is consistent with managers’ trading on crash risk for personal gain. We also find that managers take advantage of high information opacity to pursue crash-risk-based insider sales more aggressively, but are less able to capitalize on this in the case of financial constraints or post-SOX.

Suggested Citation

  • 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.
    • Handle: RePEc:kap:rqfnac:v:56:y:2021:i:4:d:10.1007_s11156-020-00936-3
    DOI: 10.1007/s11156-020-00936-3
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    More about this item

    Keywords

    Insider selling; Managerial opportunism; Financial constraints; Information asymmetry; SOX;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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