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Strategic Trading and Trade Reporting by Corporate Insiders

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Author Info

  • André Betzer

    ()
    (University of Wuppertal)

  • Jasmin Gider

    ()
    (Graduate School of Economics, Bonn)

  • Daniel Metzger

    ()
    (Stockholm School of Economics)

  • Erik Theissen

    ()
    (University of Mannheim, Centre for Financial Research (Cologne) and Center for Financial Studies (Frankfurt))

Abstract

Regulations in the pre-Sarbanes–Oxley era allowed corporate insiders considerable flexibility in strategically timing their trades and SEC filings, e.g., by executing several trades and reporting them jointly after the last trade. We document that even these lax reporting requirements were frequently violated and that strategic timing of trades and reports was common. Event study abnormal returns are larger after reports of strategic trades than after reports of otherwise similar nonstrategic trades. Our results imply that delayed reporting impedes the adjustment of prices to the information revealed by insider trades. They lend strong support to the more stringent reporting requirements established by the Sarbanes–Oxley Act.

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Bibliographic Info

Paper provided by Universitätsbibliothek Wuppertal, University Library in its series Schumpeter Discussion Papers with number sdp11015.

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Length: 54
Date of creation: Nov 2011
Date of revision:
Handle: RePEc:bwu:schdps:sdp11015

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Web page: http://elpub.bib.uni-wuppertal.de

Related research

Keywords: Insider trading; directors' dealings; corporate governance; market efficiency;

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References

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  1. Shijun Cheng & Venky Nagar & Madhav V. Rajan, 2007. "Insider Trades and Private Information: The Special Case of Delayed-Disclosure Trades," Review of Financial Studies, Society for Financial Studies, vol. 20(6), pages 1833-1864, November.
  2. Huddart, Steven & Hughes, John S & Levine, Carolyn B, 2001. "Public Disclosure and Dissimulation of Insider Trades," Econometrica, Econometric Society, vol. 69(3), pages 665-81, May.
  3. Darren T. Roulstone, 2003. "The Relation Between Insider-Trading Restrictions and Executive Compensation," Journal of Accounting Research, Wiley Blackwell, vol. 41(3), pages 525-551, 06.
  4. José M. Marín & Jacques Olivier, 2006. "The dog that did not bark: Insider trading and crashes," Economics Working Papers 948, Department of Economics and Business, Universitat Pompeu Fabra.
  5. Fidrmucova, J. & Goergen, M. & Renneboog, L.D.R., 2005. "Insider Trading, News Releases and Ownership Concentration," Discussion Paper 2005-025, Tilburg University, Tilburg Law and Economic Center.
  6. Boehmer, Ekkehart & Masumeci, Jim & Poulsen, Annette B., 1991. "Event-study methodology under conditions of event-induced variance," Journal of Financial Economics, Elsevier, vol. 30(2), pages 253-272, December.
  7. Betzer, André & Theissen, Erik, 2008. "Sooner or later: delays in trade reporting by corporate insiders," CFR Working Papers 08-06, University of Cologne, Centre for Financial Research (CFR).
  8. Seyhun, H. Nejat, 1986. "Insiders' profits, costs of trading, and market efficiency," Journal of Financial Economics, Elsevier, vol. 16(2), pages 189-212, June.
  9. Sylvain Friederich & Alan Gregory & John Matatko & Ian Tonks, 2002. "Short-run Returns around the Trades of Corporate Insiders on the London Stock Exchange," European Financial Management, European Financial Management Association, vol. 8(1), pages 7-30.
  10. Lakonishok, Josef & Lee, Inmoo, 2001. "Are Insider Trades Informative?," Review of Financial Studies, Society for Financial Studies, vol. 14(1), pages 79-111.
  11. Bettis, J. C. & Coles, J. L. & Lemmon, M. L., 2000. "Corporate policies restricting trading by insiders," Journal of Financial Economics, Elsevier, vol. 57(2), pages 191-220, August.
  12. Heitor Almeida & Murillo Campello, 2007. "Financial Constraints, Asset Tangibility, and Corporate Investment," Review of Financial Studies, Society for Financial Studies, vol. 20(5), pages 1429-1460, 2007 12.
  13. Betzer, André & Theissen, Erik, 2007. "Insider trading and corporate governance: The case of Germany," CFR Working Papers 07-07, University of Cologne, Centre for Financial Research (CFR).
  14. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
  15. Heitor Almeida & Murillo Campello, 2006. "Financial Constraints, Asset Tangibility, and Corporate Investment," NBER Working Papers 12087, National Bureau of Economic Research, Inc.
  16. Chordia, Tarun & Subrahmanyam, Avanidhar, 2004. "Order imbalance and individual stock returns: Theory and evidence," Journal of Financial Economics, Elsevier, vol. 72(3), pages 485-518, June.
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