Abstract

https://ssrn.com/abstract=2635257
 


 



Opportunism as a Firm and Managerial Trait: Predicting Insider Trading Profits and Misconduct


Usman Ali


MIG Capital

David A. Hirshleifer


University of California, Irvine - Paul Merage School of Business

August 30, 2016


Abstract:     
We show that opportunistic insiders can be identified through the profitability of their trades prior to quarterly earnings announcements (QEAs), and that opportunistic trading is associated with various kinds of firm/managerial misconduct. A value-weighted trading strategy based on (not necessarily pre-QEA) trades of opportunistic insiders earns monthly 4-factor alphas of over 1% — much higher than in past insider trading literature and substantial/significant even on the short side. Firms with opportunistic insiders have higher levels of earnings management, restatements, SEC enforcement actions, shareholder litigation, and executive compensation. These findings suggest that opportunism is a domain-general trait.

Number of Pages in PDF File: 81

Keywords: insider trading, managerial opportunism, managerial traits, misconduct, financial reporting, compensation

JEL Classification: G14, G34, G38, M12, M14, M41


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Date posted: July 24, 2015 ; Last revised: August 31, 2016

Suggested Citation

Ali, Usman and Hirshleifer, David A., Opportunism as a Firm and Managerial Trait: Predicting Insider Trading Profits and Misconduct (August 30, 2016). Available at SSRN: https://ssrn.com/abstract=2635257 or http://dx.doi.org/10.2139/ssrn.2635257

Contact Information

Usman Ali
MIG Capital ( email )
Newport Beach, CA 92660
United States
David A. Hirshleifer (Contact Author)
University of California, Irvine - Paul Merage School of Business ( email )
Irvine, CA California 92697-3125
United States
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