Why Are CFO Insider Trades More Informative?

27 Pages Posted: 3 Apr 2011 Last revised: 23 Feb 2020

See all articles by Heather Knewtson

Heather Knewtson

Michigan Technological University - College of Business

John R. Nofsinger

University of Alaska Anchorage

Date Written: August 16, 2013


We examine whether the stronger information content of Chief Financial Officer (CFO) insider trading relative to that of Chief Executive Officers (CEOs) results from a different willingness to exploit the information asymmetry that exists between executives and outside shareholders (scrutiny hypothesis) or from differing financial acumen between CFOs and CEOs (financial acumen hypothesis). We consider the information content of equity purchases for CEOs and CFOs. We examine purchased-based insider trading portfolio returns before and after the implementation of SOX in firms with high versus low regulation, for routine and opportunistic managers, and in samples of CEOs with prior CFO experience.

We provide evidence that SOX affected executives differently and provide support for the scrutiny hypothesis. CFO-based portfolios remain the most profitable post-SOX, but the magnitude of returns has fallen in absolute and relative terms compared to returns for CEOs. Superior financial acumen of CFOs does not appear to be supported. CEO purchase trade returns appear to be lower than CFO returns because CEOs face greater visibility and scrutiny and thus limit their own trading aggressiveness.

Keywords: Insider trading, insider rank, executives, executive roles, CEO, CFO

JEL Classification: G14, J33

Suggested Citation

Knewtson, Heather and Nofsinger, John R., Why Are CFO Insider Trades More Informative? (August 16, 2013). Knewtson, Heather, and John Nofsinger, 2014, Why are CFO Insider Trades More Informative? Managerial Finance, 40, 157-175., Available at SSRN: https://ssrn.com/abstract=1800202 or http://dx.doi.org/10.2139/ssrn.1800202

Heather Knewtson (Contact Author)

Michigan Technological University - College of Business ( email )

124 Academic Office Bldg.
1400 Townsend Drive
Houghton, MI 49931
United States
906-487-2771 (Phone)

HOME PAGE: http://https://www.mtu.edu/business/people-groups/faculty/heather-knewtson/

John R. Nofsinger

University of Alaska Anchorage ( email )

3211 Providence Drive
Anchorage, AK 99508
United States

HOME PAGE: http://faculty.cbpp.uaa.alaska.edu/jnofsinger/

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