Insider Trading of Managers: Information Environments and Executive Role Groups
52 Pages Posted: 27 Aug 2010 Last revised: 2 Apr 2011
Date Written: March 31, 2011
Abstract
I examine the information asymmetry that exists between managers and shareholders. However, managers are not one homogeneous group. Information asymmetry may exist amongst managers as well. I test this hypothesis using the trades of different Executive Role Groups. I find that all managers do not trade the same, suggesting they experience a different information environment within the firm. By splitting executives into three groups, which parallels their relative positions in firm hierarchies, I document differences in purchase and sales behavior, controlling for ownership levels, firm and managerial attributes. By forming portfolios based on insider trades, these differences are born out in subsequent excess returns.
Information asymmetry is likely to vary across firms in differently regulated environments or vary across time as new laws are implemented to increase disclosure. I find that reduced information asymmetry in more heavily regulated firms results in lower insider trading returns for managers as a whole. However, insiders are unequally affected by this information asymmetry with the senior and junior executives benefiting from information asymmetry while the middle role group (of predominantly financial experts) not apparently exploiting the information asymmetry.
Keywords: Insider trading, executive roles
JEL Classification: G32, G14, J33, J44
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, ...