45 Pages Posted: 13 Jun 2016
Date Written: May 5, 2016
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: 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