Management Earnings Forecasts, Insider Trading, and Information Asymmetry

Posted: 31 Aug 2013 Last revised: 23 Nov 2014

See all articles by Anastasia Kraft

Anastasia Kraft

University of Oldenburg - Accounting and Corporate Governance

Bong‐Soo Lee

Florida State University

Kerstin Lopatta

University of Hamburg - Faculty of Business, Economics, and Social Sciences

Date Written: 2014

Abstract

We investigate whether senior officers use accrual-based earnings management to meet voluntary earnings disclosure (i.e., management earnings forecasts) before selling or buying their own shares when they have private information. This study is the first to use the differences in timing of trades by senior officers and other insiders (e.g., directors or large shareholders) to infer information asymmetry. We hypothesize that the timing of senior officers’ trades with no other insiders’ trades at the same time indicates opportunistic trades and asymmetric information between senior officers and other insiders. Our results show that senior officers’ exclusive sales are negatively associated with future returns, indicating that they tend to use insider information. Moreover, senior officers are more likely to meet their earnings forecasts when they plan to sell stocks.

Keywords: meeting management earnings forecasts, insider trading, information asymmetry, earnings management, accruals

JEL Classification: G14, G32, M41

Suggested Citation

Kraft, Anastasia and Lee, Bong Soo and Lopatta, Kerstin, Management Earnings Forecasts, Insider Trading, and Information Asymmetry (2014). Journal of Corporate Finance 2014, 26 (1), 96–123, Available at SSRN: https://ssrn.com/abstract=2318435 or http://dx.doi.org/10.2139/ssrn.2318435

Anastasia Kraft (Contact Author)

University of Oldenburg - Accounting and Corporate Governance ( email )

Ammerländer Heerstraße 114-118
Oldenburg, D-26111
Germany

Bong Soo Lee

Florida State University ( email )

Tallahasse, FL 32306
United States

Kerstin Lopatta

University of Hamburg - Faculty of Business, Economics, and Social Sciences ( email )

Von-Melle-Park 9
Hamburg, 20146
Germany

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