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Executives’ Legal Records and Insider Trading Activities

45 Pages Posted: 13 Jun 2016  

Robert H. Davidson

Virginia Polytechnic Institute & State University - Department of Accounting and Information Systems

Aiyesha Dey

University of Minnesota - Twin Cities - Carlson School of Management

Abbie J. Smith

University of Chicago - Booth School of Business

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Date Written: May 5, 2016

Abstract

We examine how and why insider trading varies across senior executives and their firms. As predicted, the profitability of both purchases and sales are higher for “recordholder” executives (those who have a record of legal infractions), than for other “non-recordholder” executives at the same firms. The profitability of recordholder executives’ purchases and sales decrease significantly with proxies for strong information and governance environments, suggesting that recordholders have a relatively higher propensity to exploit inside information given the opportunity to do so. Finally, our classification of executives (recordholder status) can predict future returns and firm-specific information events.

Keywords: Legal infractions; insider trading; capital market information

JEL Classification: G30, G34, G38

Suggested Citation

Davidson, Robert H. and Dey, Aiyesha and Smith, Abbie J., Executives’ Legal Records and Insider Trading Activities (May 5, 2016). Chicago Booth Research Paper No. 16-12; Fama-Miller Working Paper. Available at SSRN: https://ssrn.com/abstract=2794136

Robert H. Davidson

Virginia Polytechnic Institute & State University - Department of Accounting and Information Systems ( email )

Pamplin College of Business
Blacksburg, VA 24061
United States

Aiyesha Dey

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States
6126268626 (Phone)

Abbie J. Smith (Contact Author)

University of Chicago - Booth School of Business ( email )

1101 East 58th Street
Graduate School of Business
Chicago, IL 60637-1561
United States
773-702-7295 (Phone)
773-702-0458 (Fax)

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