Insider Trading and the Legal Expertise of Corporate Executives
57 Pages Posted: 11 Sep 2015 Last revised: 13 Aug 2017
Date Written: August 12, 2017
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