Insider Trades and Private Information: The Special Case of Delayed-Disclosure Trades

Posted: 26 Jun 2008

See all articles by Shijun Cheng

Shijun Cheng

Shanghai Advanced Institute of Finance (SAIF), Shanghai Jiao Tong University

Venky Nagar

University of Michigan, Stephen M. Ross School of Business

Madhav V. Rajan

Booth School of Business, University of Chicago

Date Written: November 2007

Abstract

In certain circumstances, insider trades such as private transactions between executives and their firms could be disclosed after the end of the firm's fiscal year, on a Form-5 filing. We find that insider sales disclosed in such a delayed manner for large firms are predictive of negative future returns ( 6 to 8 percent), as well as lower future annual earnings relative to analyst forecasts. These results stand in contrast to existing findings on the uninformativeness of quickly disclosed open-market insider sales. The Sarbanes-Oxley Act curtailed the use of Form 5 under the presumption that managers used this vehicle opportunistically. Our systematic evidence supports this presumption.

Keywords: K22, G34, G38, G30, M41

Suggested Citation

Cheng, Shijun and Nagar, Venky and Rajan, Madhav V., Insider Trades and Private Information: The Special Case of Delayed-Disclosure Trades (November 2007). The Review of Financial Studies, Vol. 20, Issue 6, pp. 1833-1864, 2007, Available at SSRN: https://ssrn.com/abstract=1151568 or http://dx.doi.org/10.1093/rfs/hhm029

Shijun Cheng (Contact Author)

Shanghai Advanced Institute of Finance (SAIF), Shanghai Jiao Tong University ( email )

211 West Huaihai Road
Shanghai, 200030
China

Venky Nagar

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-647-3292 (Phone)
734-764-3146 (Fax)

Madhav V. Rajan

Booth School of Business, University of Chicago

1101 East 58th Street
Chicago, IL 60637-1561
United States

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