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

Posted: 26 Jun 2008

See all articles by Shijun Cheng

Shijun Cheng

University of Maryland - Robert H. Smith School of Business

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)

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States
301-405-5481 (Phone)
301-314-9414 (Fax)

HOME PAGE: http://www.rhsmith.umd.edu/accounting/faculty/cheng.html

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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