Are All Insider Sales Created Equal? Evidence from Form 4 Footnote Disclosures

58 Pages Posted: 30 Nov 2016 Last revised: 12 Apr 2018

See all articles by Amir Amel-Zadeh

Amir Amel-Zadeh

University of Oxford - Said Business School

Jonathan Faasse

University of Cambridge - Judge Business School

Juliane Lotz

University of Mannheim - Accounting and Taxation

Date Written: April 12, 2018

Abstract

This paper is the first to examine the information contained in executives’ voluntary supplementary disclosures in footnotes on SEC Form 4 filings that accompany stock sales. Analysing these supplementary disclosures we are able to distinguish between discretionary sales, for which insiders have discretion over the amount and timing of the sale, and nondiscretionary sales. We find that discretionary sales involve significantly larger trades and produce significantly lower abnormal announcement returns than nondiscretionary sales, particularly when internal controls are perceived to be weak. Our findings suggests that discretionary sales reveal negative information to investors who do not seem to fully impound the information into stock prices in a timely manner as these sales are predictive of negative future stock returns. Investigating the type of bad news that these insider sales predict, we find a positive association with the likelihood of future analyst downgrades, negative earnings surprises and future litigation.

Keywords: Insider sales; Form 4 filings; voluntary disclosure; footnotes; information content

JEL Classification: G12, G14, G30, M41

Suggested Citation

Amel-Zadeh, Amir and Faasse, Jonathan and Lotz, Juliane, Are All Insider Sales Created Equal? Evidence from Form 4 Footnote Disclosures (April 12, 2018). Saïd Business School WP 2016-29. Available at SSRN: https://ssrn.com/abstract=2877123 or http://dx.doi.org/10.2139/ssrn.2877123

Amir Amel-Zadeh (Contact Author)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

Jonathan Faasse

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

Juliane Lotz

University of Mannheim - Accounting and Taxation ( email )

Mannheim, 68131
Germany

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