Insider Trading and the Legal Expertise of Corporate Executives

We investigate if prior professional legal education either restrains or increases the extent to which the insider trades of company executives and directors are informed. We show that executives and directors with legal expertise (lawyer-insiders) earn significantly lower abnormal returns than non-lawyer-insiders when they purchase their own company’s shares. Purchases by lawyer-insiders are associated with lower future earnings surprises and firm profitability than those made by non-lawyer-insiders, and are more muted following months with high levels of SEC enforcement activity. Our results suggest that insiders with legal education may be more conservative in exploiting private information when making insider trades.

Keywords: Insider trading, legal expertise, law degree, asset prices, private information

JEL Classification: G14, G30, G38, K20

Suggested Citation: Suggested Citation

Jiang, Chao and Wintoki, Modupe Babajide and Xi, Yaoyi, Insider Trading and the Legal Expertise of Corporate Executives (August 12, 2017). Journal of Banking and Finance, forthcoming, Available at SSRN: https://ssrn.com/abstract=2658969 or http://dx.doi.org/10.2139/ssrn.2658969