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Insider Trading of Managers:
Information Environments and Executive Role Groups

Heather S Knewtson

Michigan Technological University

March 31, 2011

I examine the information asymmetry that exists between managers and shareholders. However, managers are not one homogeneous group. Information asymmetry may exist amongst managers as well. I test this hypothesis using the trades of different Executive Role Groups. I find that all managers do not trade the same, suggesting they experience a different information environment within the firm. By splitting executives into three groups, which parallels their relative positions in firm hierarchies, I document differences in purchase and sales behavior, controlling for ownership levels, firm and managerial attributes. By forming portfolios based on insider trades, these differences are born out in subsequent excess returns.

Information asymmetry is likely to vary across firms in differently regulated environments or vary across time as new laws are implemented to increase disclosure. I find that reduced information asymmetry in more heavily regulated firms results in lower insider trading returns for managers as a whole. However, insiders are unequally affected by this information asymmetry with the senior and junior executives benefiting from information asymmetry while the middle role group (of predominantly financial experts) not apparently exploiting the information asymmetry.

Number of Pages in PDF File: 52

Keywords: Insider trading, executive roles

JEL Classification: G32, G14, J33, J44

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Date posted: August 27, 2010 ; Last revised: April 2, 2011

Suggested Citation

Knewtson, Heather S, Insider Trading of Managers: Information Environments and Executive Role Groups (March 31, 2011). Available at SSRN: https://ssrn.com/abstract=1666163 or http://dx.doi.org/10.2139/ssrn.1666163

Contact Information

Heather S Knewtson (Contact Author)
Michigan Technological University ( email )
School of Business and Economics
1400 Townsend Drive
Houghton, MI 49931
United States
906-487-2771 (Phone)
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