Insider Trading and the Legal Expertise of Corporate Executives

57 Pages Posted: 11 Sep 2015 Last revised: 13 Aug 2017

See all articles by Chao Jiang

Chao Jiang

University of South Carolina - Department of Finance

M. Babajide Wintoki

University of Kansas - School of Business

Yaoyi Xi

University of Kansas

Date Written: August 12, 2017

Abstract

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

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

Chao Jiang (Contact Author)

University of South Carolina - Department of Finance ( email )

1014 Greene Street
Columbia, SC 29208
United States

Modupe Babajide Wintoki

University of Kansas - School of Business ( email )

1300 Sunnyside Avenue
Lawrence, KS 66045
United States

Yaoyi Xi

University of Kansas

1415
Lawrence, KS 66045
United States

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