Strategic Management Guidance and Insider Trading Activities

Posted: 14 Mar 2015 Last revised: 13 Apr 2020

See all articles by Bruce K. Billings

Bruce K. Billings

Florida State University - Department of Accounting

William L. Buslepp

Louisiana State University, Baton Rouge - Department of Accounting

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

Billings, Bruce K. and Buslepp, William L., Strategic Management Guidance and Insider Trading Activities (March 12, 2015). Journal of Accounting and Public Policy, Vol. 35, No. 1 (2016) pp. 84-104, Available at SSRN: https://ssrn.com/abstract=2577600

Bruce K. Billings (Contact Author)

Florida State University - Department of Accounting ( email )

Rovetta Business Bldg. (RBA)
College of Business
Tallahassee, FL 32306-1110
United States
850-644-7889 (Phone)
850-644-8234 (Fax)

William L. Buslepp

Louisiana State University, Baton Rouge - Department of Accounting ( email )

E.J. Ourso College of Business Administration
2800 Business Education Complex
Baton Rouge, LA 70803
United States

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