Insider Trading as a Vehicle to Appropriate Rent from R&D
Strategic Management Journal (24), 183-190, 2003
8 Pages Posted: 20 Jan 2004 Last revised: 27 Jul 2012
Date Written: July 26, 2012
Most insider trading is routine and not subject to prosecution or enforcement. Still, investors typically treat it as a signal about the firm's prospects. In other words, they act as though the trades reflect managers' attempts to profit from their private inside information. This article examines insider trading as a mechanism to appropriate rent from R&D breakthroughs. We analyze abnormal returns in stock prices in response to over 134,000 insider-trading events and find that insider purchases generate larger positive stock price reactions for R&D intensive firms. Investors act as though they assume that managers use insider trading to appropriate rent from R&D productivity. We briefly discuss how shareholders may actually prefer this rent appropriation mechanism over other forms of compensation that directly reduce a firm's income.
Note: This is a description of the paper and not the actual abstract.
Keywords: Knowledge, Insider trading, Rent appropriation, Competitive advantage
JEL Classification: G32, J32, K22, L100
Suggested Citation: Suggested Citation