Stealth Trading and Trade Reporting by Corporate Insiders
Forthcoming, Review of Finance
60 Pages Posted: 17 Jan 2010 Last revised: 3 Feb 2014
Date Written: February 2014
Regulations in the pre-Sarbanes-Oxley era allowed corporate insiders considerable flexibility in timing their trades and engaging in stealth trading, e.g., by executing several trades and reporting them jointly after the last trade. We document that even these lax reporting requirements were frequently violated and stealth trading was common. Event study abnormal returns are larger after reports of stealth trades than after reports of otherwise similar non-stealth trades. Our results imply that delayed reporting impedes the adjustment of prices to the information revealed by insider trades. They lend strong support to the more stringent reporting requirements established by the Sarbanes-Oxley Act.
Keywords: Insider trading, directors' dealings, corporate governance, market efficiency
JEL Classification: G14, G3, G32
Suggested Citation: Suggested Citation