Corporate Governance, Earning Quality and Information Asymmetry: Evidence from Insider Trading Around the Globe

42 Pages Posted: 2 Feb 2016

See all articles by Allan Hodgson

Allan Hodgson

University of Queensland - Faculty of Business, Economics and Law; Financial Research Network (FIRN)

Suntharee Lhaopadchan

Kasetsart University - Faculty of Management Sciences

Sirimon Treepongkaruna

The University of Western Australia; Financial Research Network (FIRN)

Date Written: February 1, 2016

Abstract

We investigate the performance and its link with information asymmetry, corporate governance and legal enforcement of insider transactions in 36 countries covering 10 Asian countries, 20 European countries and 6 countries in the rest. The results show that abnormal returns after insider trading are generally positive over time especially on Monday (insider sales) and Friday (insider purchase) for both executive and non-executive directors. The insider trading performance is typically related to earnings management which is measured by accruals. Corporate insider trading is informative and can assist in the analysis of future prospect of the firm. The zero-investment portfolios based on insider trading and accruals offers positive returns in most of the countries. However, after adjusting market risk, the profit of insider trading portfolios remain only in a few countries. The regression analysis exhibit the importance of corporate governance to limit the insider profits.

Keywords: Corporate Governance; Insider Trading; Day of Week; Directorial Position; Earnings Management

JEL Classification: G14, G34

Suggested Citation

Hodgson, Allan C. and Lhaopadchan, Suntharee and Treepongkaruna, Sirimon, Corporate Governance, Earning Quality and Information Asymmetry: Evidence from Insider Trading Around the Globe (February 1, 2016). FIRN Research Paper No. 2725778, Available at SSRN: https://ssrn.com/abstract=2725778 or http://dx.doi.org/10.2139/ssrn.2725778

Allan C. Hodgson

University of Queensland - Faculty of Business, Economics and Law ( email )

4072 Brisbane, Queensland
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Suntharee Lhaopadchan (Contact Author)

Kasetsart University - Faculty of Management Sciences ( email )

199 Sukhumvit Road
Thungsukhla
Siracha, Chonburi 20230
Thailand

Sirimon Treepongkaruna

The University of Western Australia ( email )

35 Stirling Highway
Crawley, Western Australia 6009
Australia
+61864887853 (Phone)
+61864881086 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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