Abstract

http://ssrn.com/abstract=1671683
 
 

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Disclosures of Insider Purchases and the Valuation Implications of Past Earnings Signals


David Veenman


Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

January 15, 2012

Accounting Review, Vol. 87, No. 1, pp. 313-342, 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.

Number of Pages in PDF File: 49

Keywords: insider trading, uncertainty, accruals quality, persistence

JEL Classification: D82, G14, M41

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Date posted: September 5, 2010 ; Last revised: January 15, 2012

Suggested Citation

Veenman, David, Disclosures of Insider Purchases and the Valuation Implications of Past Earnings Signals (January 15, 2012). Accounting Review, Vol. 87, No. 1, pp. 313-342, 2012. Available at SSRN: http://ssrn.com/abstract=1671683

Contact Information

David Veenman (Contact Author)
Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )
P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands
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