Insider Trades and Private Information: The Special Case of Delayed-Disclosure Trades
Posted: 26 Jun 2008
Date Written: November 2007
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: Suggested Citation