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Insider-trading, discretionary accruals and information asymmetry
Stockholm University, Faculty of Social Sciences, Stockholm Business School.
Number of Authors: 32018 (English)In: The British Accounting Review, ISSN 0890-8389, E-ISSN 1095-8347, Vol. 50, no 4, p. 341-363Article in journal (Refereed) Published
Abstract [en]

Using US data for the period from 2004 to 2012 and alternative discretionary accruals measures, we examine whether insiders manipulate earnings in an asymmetric information environment to profit from their informed trades, and whether the intervening information environment influences the relationship between earnings management and insider trading. We show that insider trading dominated by sell trades has a positive association with discretionary accruals. The incremental effect of information asymmetry as well as the interaction with insider trading is also prevalent in this relation, confirming the moderating effect of asymmetric information. Further, we show that the active involvement of some key insiders in high discretionary accruals is for personal benefit more in growth firms than in value firms. Our results also suggest that earnings management allows for insiders' opportunistic, rather than routine, buy and sell trades. Our findings highlight that regulators should oversee and scrutinise both insider trading and earnings management to mitigate the risk of the opportunistic behaviour of insiders to avoid future corporate scandals.

Place, publisher, year, edition, pages
2018. Vol. 50, no 4, p. 341-363
Keywords [en]
Insider trading, Discretionary accruals, Information asymmetry, Major insiders, Opportunistic and routine trading
National Category
Economics and Business
Research subject
Business Administration
Identifiers
URN: urn:nbn:se:su:diva-158279DOI: 10.1016/j.bar.2017.08.005ISI: 000438004600001OAI: oai:DiVA.org:su-158279DiVA, id: diva2:1236244
Available from: 2018-08-01 Created: 2018-08-01 Last updated: 2022-02-26Bibliographically approved
In thesis
1. Essays on Insider Trading and Initial Public Offerings
Open this publication in new window or tab >>Essays on Insider Trading and Initial Public Offerings
2018 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

   This thesis consists of four self-standing articles on insider trading, initial public offerings and delisting of corporate firms.

   The first paper in this thesis investigates whether insiders, in an asymmetric information environment, manipulate the earnings of a firm to influence investors’ perceptions of firm value in order to benefit from their trades. The main finding of this paper is a positive association between accrual-based earnings management and sell-dominated insider trading given the existence of asymmetric information. We find a leading role for information asymmetry and its interaction effect on the relationship between insider trading and discretionary accrual proxies.

   The second paper examines the opportunistic trading behavior of core insiders compared with non-core ones. We document that although both core and non-core insiders are equally motivated by contrarian beliefs, their motivational difference in opportunistic trading is primarily connected to preferential and favored access to superior private information.

   The third paper investigates the role underwriters play in initial public offerings on Mondays. Our evidence suggests that underwriters are reluctant to take firms public on Mondays, as they face uncertainty about pricing the IPOs due to the lack of information and a greater risk of not being able to sell stocks at the offer price, thus losing money. However, they bring IPOs on Mondays, as they are sufficiently underpriced to minimize their risks.

   The fourth paper investigates the roles of institutional investors and insiders in the delisting of firms – an important corporate event. Our analysis reveals that institutional holdings have a negative effect on a firm’s probability of being delisted within five years after the IPO. We also find that insider purchases have a negative effect and insider sales have a positive effect on the probability of delisting. Our result further shows that the probability of delisting decreases if firms’ insiders increase their holdings.

Place, publisher, year, edition, pages
Stockholm: Stockholm Business School, Stockholm University, 2018. p. 15
Keywords
Insider trading, Discretionary accruals, Information asymmetry, Opportunistic trades, Contrarian beliefs, Superior information, Monday IPOs, Underwriters, Institutional holdings, Delisting, Distance to default
National Category
Business Administration
Research subject
Business Administration
Identifiers
urn:nbn:se:su:diva-160942 (URN)978-91-7797-454-3 (ISBN)978-91-7797-455-0 (ISBN)
Public defence
2018-11-29, Gröjersalen, hus 3, Kräftriket, Roslagsvägen 101, Stockholm, 13:00 (English)
Opponent
Supervisors
Note

At the time of the doctoral defense, the following papers were unpublished and had a status as follows: Paper 2: Manuscript. Paper 3: Manuscript. Paper 4: Manuscript.

Available from: 2018-11-06 Created: 2018-10-12 Last updated: 2022-02-26Bibliographically approved

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Chowdhury, Abu

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