Disclosures of Insider Purchases and the Valuation Implications of Past Earnings Signals
49 Pages Posted: 5 Sep 2010 Last revised: 15 Jan 2012
Date Written: January 15, 2012
Abstract
This study examines whether disclosures of insider equity purchases on SEC Form 4 resolve uncertainty regarding the valuation implications of reported earnings. Defining information uncertainty as ambiguity about firm value arising from low earnings precision, I predict and find that insider purchase filings trigger more positive market reactions in firms with greater information uncertainty (lower quality accruals). After controlling for future earnings changes, I further find that market reactions to purchase filings are predictably associated with prior earnings changes. The strength of this effect is increasing in the magnitude of insider purchases as well as the level of information uncertainty. Overall, these findings suggest that, in addition to signaling future earnings information, Form 4 purchase filings help investors learn about the valuation implications of past earnings signals.
Keywords: insider trading, uncertainty, accruals quality, persistence
JEL Classification: D82, G14, M41
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, ...