Evidence of strategic information uncertainty around opportunistic insider purchases

Rahman, Dewan; Oliver, Barry; Faff, Robert W.

doi:10.1016/j.jbankfin.2020.105821

Cited by 6 publications

(5 citation statements)

References 43 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Prior research indicates that if a firm writes a less readable annual report, it increases information opacity and makes it considerably easier for managers to exploit resources in a self-serving manner (Biddle et al, 2009;Huang and Zhang, 2012). Consistent with opportunistic motive of managers, Rahman et al (2020) show that managers strategically increase information uncertainty around opportunistic insider trading. However, the accounting and finance literature has yet to explore whether insiders strategically make annual reports less readable and increase information opacity to exploit their information advantage.…”

Section: Introductionmentioning

confidence: 74%

“…First, there has been extensive research into strategic disclosures (e.g. Cheng and Lo, 2006; Edmans et al, 2018; Rahman et al, 2020) where the focus is on sentiment and news tone around insider trading. However, limited research has been conducted into strategic disclosures using readability and lexical characteristics.…”

Section: Introductionmentioning

confidence: 99%

“…In terms of strategic news releases, recent literature (e.g. Rahman et al, 2020) also suggests that opportunistic insider trading is only prevalent for insider purchases.…”

mentioning

confidence: 99%

See 2 more Smart Citations

The readability of 10-K reports and insider trading profitability

Rahman

Oliver

2021

Australian Journal of Management

Self Cite

View full text Add to dashboard Cite

This study links the readability of 10-K reports to insider trading profitability. Using a sample of 102,060 insider transactions in the United States between 1994 and 2016, we empirically demonstrate that less readable 10-K reports increase profitability from insider trading. Consistent with the proprietary cost argument, we also document that readability impacts on insider trading profitability are more pronounced for research and development–intensive firms, for firms facing higher product market competition and trade secrecy, and for firms with lower levels of voluntary management disclosures. Overall, this study supports the proprietary cost and strategic information asymmetry channel of readability and suggests that less readable reports lead to the exploitation of information advantages by insiders. JEL Classification: D4, G14, G34, G40

show abstract

Section: Introductionmentioning

confidence: 74%

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

The readability of 10-K reports and insider trading profitability

Rahman

Oliver

2021

Australian Journal of Management

Self Cite

View full text Add to dashboard Cite

show abstract

“…Rahman et al . (2020) find that during the same month that the CEO purchases stock, information uncertainty increases and is related to lower stock prices. Bochkay et al (2020) point out that extreme words lead to a stronger response in trading volume around earnings conference calls.…”

Section: Literature Reviewmentioning

confidence: 99%

Earnings communication conferences and post‐earnings‐announcement drift: Evidence from China

Yang

Liu

2022

Accounting & Finance

View full text Add to dashboard Cite

Earnings communication conferences in China have become the main platform for direct communication between listed firms and individual investors. This study investigates whether hosting an earnings communication conference and its tone affect post‐earnings‐announcement drift (PEAD). We find that hosting an earnings communication conference increases PEAD. One possible explanation for our results is that investors overreact to the stock prices of firms that hold earnings communication conferences. We also conclude that the conference tone is negatively correlated with PEAD. In addition, the market reacts more strongly to the managers’ tone than it does to the investor's tone.

show abstract

“…However, a counter view has received more attention from the regulators as some prior literature also suggests that opportunistic insiders extract benefits from their trading and this limits gains available to other investors (e.g. Bettis et al, 2000;Fishman and Hagerty, 1992;Jagolinzer et al, 2011;Manove, 1989;Rahman et al, 2020;Seyhun, 1986).…”

Section: Introductionmentioning

confidence: 99%

Does board independence constrain insider opportunism?

Rahman

Faff

Oliver

2020

Australian Journal of Management

Self Cite

View full text Add to dashboard Cite

We examine whether insider opportunism is reduced by board independence. Using a sample of 18,194 firm-year observations over the period 1996–2016, we show that board independence constrains opportunistic insider trading. Our identification strategy uses the Sarbanes–Oxley Act of 2002 (SOX Act) and associated changes to the listing rules of NYSE/NASDAQ as a source of exogenous shocks in board independence. Our results are economically significant as insider opportunism declines by about 10.5%. We find that insider trading restrictions is the channel through which board independence reduces insider opportunism. Our additional analyses show that in competitive and R&D (research and development) intensive firms, the impact of board independence on opportunism is less pronounced. We also find that board independence constrains opportunism only in less complex firms. However, in co-opted boards, independent directors are less effective. Overall, we support the monitoring channel of board independence for reducing insider opportunism. JEL Classification: G14, G34, G40

show abstract

Evidence of strategic information uncertainty around opportunistic insider purchases

Cited by 6 publications

References 43 publications

The readability of 10-K reports and insider trading profitability

The readability of 10-K reports and insider trading profitability

Earnings communication conferences and post‐earnings‐announcement drift: Evidence from China

Does board independence constrain insider opportunism?

Contact Info

Product

Resources

About