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Geographic connections to China and insider trading at the start of the COVID-19 pandemic

Author

Listed:
  • Erin Henry

    (University of Arkansas)

  • George A. Plesko

    (University of Connecticut)

  • Caleb Rawson

    (University of Arkansas)

Abstract

The sudden and exogenous nature of the COVID-19 crash provides a unique identification opportunity to study insiders’ informational advantages. We find that the sales of insiders at firms with connections to China were significantly more profitable during the COVID-19 crisis than the sales of insiders at firms without connections to China. Consistent with greater attentiveness to public information about the COVID-19 pandemic, this result is driven by China connected insiders executing larger (smaller) sales in the early (late) COVID-19 period than non–China connected insiders. We find our results are driven by trades that are not preplanned under Rule 10b5–1 and are consistent with anticipation of the systematic market effects of COVID-19 on an insider’s firm as opposed to firm-specific effects. Aggregate China connected insider trades also predict market returns during the COVID-19 period. Our study contributes to the insider trading literature by introducing geographic connection to market-wide information as a source of public information advantage and to regulatory efforts to investigate and understand corporate insider behavior related to the COVID-19 pandemic.

Suggested Citation

  • Erin Henry & George A. Plesko & Caleb Rawson, 2024. "Geographic connections to China and insider trading at the start of the COVID-19 pandemic," Review of Accounting Studies, Springer, vol. 29(1), pages 354-387, March.
    • Handle: RePEc:spr:reaccs:v:29:y:2024:i:1:d:10.1007_s11142-022-09715-y
    DOI: 10.1007/s11142-022-09715-y
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    More about this item

    Keywords

    Insider trading; China operations; Pandemic; COVID-19;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G01 - Financial Economics - - General - - - Financial Crises
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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