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Management Earnings Forecast Bias and Insider Trading: Comparison of Distressed and Non-Distressed Firms

Afshad J. Irani
University of New Hampshire - Department of Accounting & Finance

April 2001

Abstract:
This study investigates the association between bias in earnings forecasts released by managers of financially distressed firms and subsequent insider trading. Prior studies have documented optimism in such forecasts. Given this finding, this study investigates whether this optimism is systematically related to opportunistic management behavior or a sincere belief (by management) that their firm's financial situation is going to get better. Abnormal insider trading in the post management forecast period is examined to test these alternative explanations. The findings for the full sample are consistent with the opportunistic view, however the trading activity of non-managerial insiders seems to be the primary driver.

Keywords: Voluntary disclosure; Forecast bias; Financial distress; Insider trading

JEL Classifications: G34, K22, M41, M43

Working Paper Series

Date posted: July 29, 2001 ; Last revised: August 27, 2001

Suggested Citation

Irani, Afshad J., Management Earnings Forecast Bias and Insider Trading: Comparison of Distressed and Non-Distressed Firms (April 2001). Available at SSRN: http://ssrn.com/abstract=277259 or doi:10.2139/ssrn.277259

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Contact Information

Afshad Jeevan Irani (Contact Author)

University of New Hampshire - Department of Accounting & Finance ( email )

Durham, NH 03824
United States
603-862-3342 (Phone)
603-862-3383 (Fax)