Disclosure Quality and Management Trading Incentives
54 Pages Posted: 4 Nov 2008 Last revised: 26 Oct 2011
Date Written: April 1, 2008
This study examines whether managers strategically alter disclosure “quality” in response to personal incentives, specifically those derived from trading on their own account. Using changes in market liquidity to proxy for disclosure quality, I find that trading incentives are associated with disclosure quality choices. Tests are performed across three disclosure samples: management forecasts, conference calls and press releases. Consistent with a desire to reduce the probability of litigation, I find evidence that managers provide higher quality disclosures before selling shares than they provide in the absence of trading. Consistent with a desire to maintain their information advantage, I find some, albeit weaker, evidence that managers provide lower quality disclosures prior to purchasing shares than they provide in the absence of trading.
Keywords: disclosure quality, liquidity, information asymmetry, insider trading
JEL Classification: M41, M45, D82, G14, G18, K22
Suggested Citation: Suggested Citation