Strategic Management Guidance and Insider Trading Activities
Posted: 14 Mar 2015 Last revised: 13 Apr 2020
Date Written: March 12, 2015
Abstract
We assess whether managers engage in ex ante strategic behavior when issuing earnings forecasts in a novel context. We posit that some managers provide inaccurate downward guidance to increase the positive surprise and pricing premium at the earnings announcement, thereby maximizing profits from selling shares following the earnings announcement. In support, we document that managers are more likely to have issued prior inaccurate downward guidance when they sell more shares or increase their selling activities following the earnings announcement. Further, we show that these managers benefit economically by linking inaccurate downward guidance to greater pricing premiums at the earnings announcement date and more positive cumulative stock returns over the period from inaccurate downward guidance to subsequent earnings announcement.
Keywords: Expectations management, Management forecasts, Analyst forecasts, Insider trading
JEL Classification: G14, G24, M4
Suggested Citation: Suggested Citation