Insider Trading and Response to Earnings Announcements: The Impact of Accelerated Disclosure Requirements

29 Pages Posted: 16 Sep 2014 Last revised: 10 Jun 2017

See all articles by Semih Tartaroglu

Semih Tartaroglu

Wichita State University

Michael Imhof

Wichita State University - Barton School of Accountancy

Date Written: April 25, 2016

Abstract

This paper contributes to the debate on the consequences of increased disclosure regulation by investigating the effects of expedited reporting requirements of Form 4 filings, mandated by the Sarbanes-Oxley Act (SOX), on the market response to earnings announcements. We first confirm that SOX reduces opportunistic insider trading without deterring insider trading due to diversification needs, and that post-SOX, opportunistic insider trades more strongly reveal upcoming earnings surprises. We then document that, at the earnings announcement date, earnings response coefficients (ERCs) are lower when earnings are preceded by opportunistic insider trades. We conclude that accelerated disclosures of insider transactions mandated by SOX lend to more informationally efficient prices prior to earnings announcements. Our findings stand as one piece of evidence suggesting positive externalities from recent Securities and Exchange Commission (SEC) disclosure regulation and add to the scarce evidence on the consequences of changes in Form 4 filing requirements.

Keywords: Insider Trading, Disclosure, Sarbanes-Oxley Act, Earnings Announcements, Earnings Response Coefficients

JEL Classification: G14, G18, G38, M40, M48

Suggested Citation

Tartaroglu, Semih and Imhof, Michael, Insider Trading and Response to Earnings Announcements: The Impact of Accelerated Disclosure Requirements (April 25, 2016). Review of Quantitative Finance and Accounting, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2496788 or http://dx.doi.org/10.2139/ssrn.2496788

Semih Tartaroglu (Contact Author)

Wichita State University ( email )

Department of Finance, Real Estate & Decision
Sciences (FREDS)
Wichita, KS 67260-0077
United States
(316) 978 7124 (Phone)

Michael Imhof

Wichita State University - Barton School of Accountancy ( email )

United States

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