Hiding in Plain Sight: Can Disclosure Enhance Insiders’ Trade Returns?
U of Chicago Law & Economics, Olin Working Paper No. 411
Rock Center for Corporate Governance at Stanford University Working Paper No. 7
33 Pages Posted: 27 May 2008 Last revised: 5 Aug 2012
Date Written: August 2012
Abstract
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.
Keywords: Rule 10b5-1, voluntary disclosure, insider trading
JEL Classification: D82, G38, K22, M41, M45, M52
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
The Profits to Insider Trading: a Performance-Evaluation Perspective
By Leslie A. Jeng, Richard J. Zeckhauser, ...
-
Estimating the Returns to Insider Trading: A Performance-Evaluation Perspective
By Leslie A. Jeng, Richard J. Zeckhauser, ...
-
Overreaction and Insider Trading: Evidence from Growth and Value Portfolios
By Michael S. Rozeff and Mir A. Zaman
-
What Insiders Know About Future Earnings and How They Use it: Evidence from Insider Trades
By Bin Ke, Steven J. Huddart, ...
-
Market Efficiency and Insider Trading: New Evidence
By Michael S. Rozeff and Mir A. Zaman
-
The Conditional Performance of Insider Trades
By B. Espen Eckbo and David C. Smith
-
Are Insiders' Trades Informative?
By Josef Lakonishok and Inmoo Lee
-
Performance Evaluation with Transactions Data: the Stock Selection of Investment Newsletters
-
Insider Trading, News Releases and Ownership Concentration
By Jana P. Fidrmuc, Marc Goergen, ...
-
Public Disclosure and Dissimulation of Insider Trades
By Steven J. Huddart, John S. Hughes, ...