What Insiders Know About Future Earnings and How They Use it: Evidence from Insider Trades

46 Pages Posted: 29 Jul 2001

See all articles by Bin Ke

Bin Ke

National University of Singapore

Steven J. Huddart

Pennsylvania State University, University Park - Department of Accounting

Kathy R. Petroni

Michigan State University - Eli Broad College of Business and Eli Broad Graduate School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: March, 2002

Abstract

This paper provides evidence that insiders possess, and trade upon, knowledge of specific and economically-significant forthcoming accounting disclosures as long as two years prior to the disclosure. Stock sales by insiders increase three to nine quarters prior to a break in a string of consecutive increases in quarterly earnings. Insider stock sales are greater for growth firms, before a longer period of declining earnings, and when the earnings decline at the break is greater. Consistent with avoiding an established legal jeopardy, there is little abnormal selling in the two quarters immediately prior to the break.

Keywords: Insider trading, Securities regulation

JEL Classification: G18, M41, K22

Suggested Citation

Ke, Bin and Huddart, Steven J. and Petroni, Kathy Ruby, What Insiders Know About Future Earnings and How They Use it: Evidence from Insider Trades (March, 2002). Available at SSRN: https://ssrn.com/abstract=278055 or http://dx.doi.org/10.2139/ssrn.278055

Bin Ke

National University of Singapore ( email )

Mochtar Riady Building, BIZ 1, #07-54
15 Kent Ridge Drive
Singapore, 119245
Singapore
+6566013133 (Phone)

Steven J. Huddart (Contact Author)

Pennsylvania State University, University Park - Department of Accounting ( email )

University Park, PA 16802-3603
United States
814-863-0448 (Phone)

HOME PAGE: http://directory.smeal.psu.edu/sjh11

Kathy Ruby Petroni

Michigan State University - Eli Broad College of Business and Eli Broad Graduate School of Management ( email )

East Lansing, MI 48824-1121
United States
517-432-2924 (Phone)
517-432-1101 (Fax)

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