Download or read book Insider Trading and Voluntary Disclosures written by Qiang Cheng and published by . This book was released on 2013 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Hiding in Plain Sight written by M. Todd Henderson and published by . This book was released on 2012 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Voluntary Disclosures and Insider Transactions written by Christopher F. Noe and published by . This book was released on 1996 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Insider Regulation and Timely Disclosure written by Klaus J. Hopt and published by Springer. This book was released on 1996-02-27 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Insider Trading and Disclosure written by Eli Amir and published by . This book was released on 2019 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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).
Download or read book Scienter Disclosure written by M. Todd Henderson and published by . This book was released on 2008 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Essays in Audit Market Enforcement Actions and Voluntary Disclosures written by Seong Jin Ahn (Accounting professor) and published by . This book was released on 2018 with total page 160 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Insider Trading written by Paul U. Ali and published by CRC Press. This book was released on 2008-08-22 with total page 452 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Trading Prior to the Disclosure of Material Information written by John L. Campbell and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Talking Up Liquidity written by Ming Huang and published by . This book was released on 2009 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Insider Trading and Response to Earnings Announcements written by Semih Tartaroglu and published by . This book was released on 2017 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper contributes to the debate on the consequences of increased disclosure regulation by investigating the effects of expedited reporting requirements of Form 4 filings, mandated by the Sarbanes-Oxley Act (SOX), on the market response to earnings announcements. We first confirm that SOX reduces opportunistic insider trading without deterring insider trading due to diversification needs, and that post-SOX, opportunistic insider trades more strongly reveal upcoming earnings surprises. We then document that, at the earnings announcement date, earnings response coefficients (ERCs) are lower when earnings are preceded by opportunistic insider trades. We conclude that accelerated disclosures of insider transactions mandated by SOX lend to more informationally efficient prices prior to earnings announcements. Our findings stand as one piece of evidence suggesting positive externalities from recent Securities and Exchange Commission (SEC) disclosure regulation and add to the scarce evidence on the consequences of changes in Form 4 filing requirements.
Download or read book The Law and Finance of Corporate Insider Trading Theory and Evidence written by Hamid Arshadi and published by Springer Science & Business Media. This book was released on 2012-12-06 with total page 171 pages. Available in PDF, EPUB and Kindle. Book excerpt: A thorough analysis of insider trading requires the integration of law and finance, and this book presents a theoretical and empirical examination of insider trading by incorporating a synthesis of securities law with that of financial theory. The book begins with a conceptual framework that explores the theoretical roles of markets, firms and publicly held corporations, including a discussion of corporate governance to determine both who may have access to nonpublic information, and their legal rights and responsibilities. The book then examines different aspects of the securities laws, including the Securities Act of 1933, the Securities Exchange Act of 1934, and a critique of the SEC disclosure rules and their ramifications for market efficiency. This is followed by a detailed chronology of insider trading regulations enacted in the U.S. since 1934 and an overview of the existing empirical literature on insider trading. Empirical evidence is presented on insider trading activities and the merit of anti-insider trading laws is evaluated on theoretical arguments and recent empirical developments. The authors conclude by arguing that insider trading laws and enforcement activities have failed and propose the decriminalization of insider trading.
Download or read book Fair Disclosure and Insider Trading Reforms written by James Hamilton and published by . This book was released on 2000 with total page 108 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Mandatory Disclosure Regulation Insider Trading and the Economics of Information written by and published by . This book was released on 1989 with total page 172 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Disclosure Timeliness Insider Trading Opportunities and Litigation Consequences written by Mary Brooke Billings and published by . This book was released on 2008 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: Prior work indicates that less timely disclosure of negative earnings news increases firms' litigation consequences. Yet, managers' negative news warnings occur relatively infrequently. In this paper, I investigate whether managers' disclosure delays relate to the opportunity to decrease their equity position in the firm and, if so, whether this trading behavior is associated with increased litigation consequences. I find that the managers who are less timely in their disclosure of negative news are more likely to have engaged in abnormal trade prior to the market's receipt of the negative news and that this trading behavior is associated with increased litigation consequences for the firm. Further analysis detects limited repercussions for the managers involved in the trading. Collectively, my findings suggest that research examining managers' disclosure behavior, particularly studies that consider managers' disclosure behavior in the litigation setting, should take into account the influence of managers' trading behavior on both their disclosure decisions and firms' litigation consequences.
Download or read book Strategic Disclosure Timing and Insider Trading written by Marina Niessner and published by . This book was released on 2013 with total page 74 pages. Available in PDF, EPUB and Kindle. Book excerpt: I examine whether managers strategically disclose negative news for their own benefit. Exploiting the SEC requirement that managers must disclose certain material corporate events within five business days, I find they disclose negative events disproportionately on Fridays, before national holidays, and after the market closes - when investors are more distracted - despite these events occurring uniformly across days. This pattern is absent for non-negative events. Strategic disclosure timing is concentrated among smaller firms that have more retail investors and lower analyst coverage. I find a significant return under-reaction following negative Friday disclosures that persists for approximately three weeks, but no under-reaction for other days of the week. Managers exploit the return under-reaction to benefit their insider trading. Disclosure of negative news on a Friday is twice as likely if a manager sells shares in the weeks following the event. Google searches and trading volume provide corroborating evidence that investors are more distracted on Fridays. These results are consistent with managers undertaking strategic actions to exploit the behavior of investors in the market.
Download or read book The Effect of Insider Trading and Compensation Incentives on Disclosure Quality written by Wei Zhang and published by . This book was released on 2000 with total page 192 pages. Available in PDF, EPUB and Kindle. Book excerpt:
