Management Earnings Forecast Bias and Insider Trading: Comparison of Distressed and Non-Distressed Firms

28 Pages Posted: 29 Jul 2001

Date Written: April 2001

Abstract

This study investigates the association between bias in earnings forecasts released by managers of financially distressed firms and subsequent insider trading. Prior studies have documented optimism in such forecasts. Given this finding, this study investigates whether this optimism is systematically related to opportunistic management behavior or a sincere belief (by management) that their firm's financial situation is going to get better. Abnormal insider trading in the post management forecast period is examined to test these alternative explanations. The findings for the full sample are consistent with the opportunistic view, however the trading activity of non-managerial insiders seems to be the primary driver.

Keywords: Voluntary disclosure; Forecast bias; Financial distress; Insider trading

JEL Classification: G34, K22, M41, M43

Suggested Citation

Irani, Afshad Jeevan, Management Earnings Forecast Bias and Insider Trading: Comparison of Distressed and Non-Distressed Firms (April 2001). Available at SSRN: https://ssrn.com/abstract=277259 or http://dx.doi.org/10.2139/ssrn.277259

Afshad Jeevan Irani (Contact Author)

Washington and Lee University ( email )

204 West Washington Street
Lexington, VA 24450
United States
5404588628 (Phone)

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