Are CFOs’ Trades More Informative than CEOs’ Trades?

Wang, Weimin; Shin, Yong-Chul; Francis, Bill B.

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Are CFOs’ Trades More Informative than CEOs’ Trades?

Journal of Financial and Quantitative Analysis (JFQA), Forthcoming

38 Pages Posted: 19 Mar 2011 Last revised: 25 Mar 2011

See all articles by Weimin Wang

Bill B. Francis

Rensselaer Polytechnic Institute (RPI) - Lally School of Management

Date Written: March 15, 2011

Abstract

We investigate whether trades made by CFOs reveal more information about future stock returns than those by CEOs. We find that CFOs earn statistically and economically higher abnormal returns following their purchases of company shares than CEOs. During 1992-2002, CFOs earned an average 12-month excess return that is 5% higher than that by CEOs. The superior performance by CFOs occurs notwithstanding controls for risk factors, and persists even after their trades are publicly disclosed. Further analysis shows that CFO purchases are associated with more positive future earnings surprises than CEO purchases, suggesting that CFOs incorporate better information about future earnings.

Keywords: insider trade, CFO, CEO

JEL Classification: G14

Suggested Citation: Suggested Citation

Wang, Weimin and Shin, Yong-Chul and Francis, Bill B., Are CFOs’ Trades More Informative than CEOs’ Trades? (March 15, 2011). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming, Available at SSRN: https://ssrn.com/abstract=1787482