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Learning to Play by the Disclosure Rules: Accuracy of Insider Reports in Canada, 1996-2010

52 Pages Posted: 3 Jul 2012  

Lindsay M. Tedds

University of Victoria

Ryan A. Compton

University of Manitoba

Christopher C. Nicholls

University of Western Ontario

Daniel Sandler

University of Western Ontario - Faculty of Law

Caitlin Morrison

affiliation not provided to SSRN

Date Written: July 2, 2012

Abstract

Insiders of Canadian reporting issuers are required to file public reports when they acquire, buy, or sell securities of that reporting issuer. These public reports must be filed using a prescribed form and must be filed within a specific time frame. Failure to file these public reports or filing with inaccurate information constitutes an offence under securities law. The two main objectives served by these reporting rules are: (1) primarily as a regulatory tool to detect or prevent the improper use of undisclosed information by insiders; and (2) to increase market efficiency by providing investors with information concerning the trading activities of an issuer. These objectives are dependent on compliance with the rules, yet no information regarding compliance exists. To investigate compliance a secondary source of information to verify the information provided in public reports must exist. In Canada, the CEO and the top four highest paid executives must report detailed information regarding their compensation, including stock option awards, in the annual report to shareholders. We collect information on stock option grants for these individuals for a sample of Canadian public companies for the period 2003-2011 and compare this information to that provided in the public reports. We find that while the majority of executives properly and accurately file public reports, a significant minority fail to file or file inaccurate information. We consider the consequences of this finding and suggest ways to improve the quality of insider reporting in Canada.

Keywords: Securities Regulation, Compliance, Insider Disclosure, Continuous Disclosure, Employee Stock Options, Insider Trading

JEL Classification: G38, K22, M12

Suggested Citation

Tedds, Lindsay M. and Compton, Ryan A. and Nicholls, Christopher C. and Sandler, Daniel and Morrison, Caitlin, Learning to Play by the Disclosure Rules: Accuracy of Insider Reports in Canada, 1996-2010 (July 2, 2012). Available at SSRN: https://ssrn.com/abstract=2098001 or http://dx.doi.org/10.2139/ssrn.2098001

Lindsay M. Tedds (Contact Author)

University of Victoria ( email )

3800 Finnerty Rd
Victoria, British Columbia V8P 5C2
Canada
250-721-8068 (Phone)

HOME PAGE: http://publicadmin.uvic.ca/aboutUs/staffPersonal/tedds.php

Ryan A. Compton

University of Manitoba ( email )

501 Fletcher Argue Bldg
Winnipeg, Manitoba R3R3B1
Canada

HOME PAGE: http://home.cc.umanitoba.ca/~compton

Christopher C. Nicholls

University of Western Ontario ( email )

1151 Richmond Street
Suite 2
London, Ontario N6A 5B8
Canada

Daniel Sandler

University of Western Ontario - Faculty of Law ( email )

London, Ontario N6A 3K7 N6A 3K7
Canada

Caitlin Morrison

affiliation not provided to SSRN

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