Does Corporate Access Facilitate Informed Trading? Evidence from Trading in Advance of Internal Control Disclosures

47 Pages Posted: 8 Sep 2018 Last revised: 23 Feb 2019

See all articles by Cory A. Cassell

Cory A. Cassell

University of Arkansas

Tyler J. Kleppe

University of Arkansas

Andrew T. Pierce

University of Arkansas

Margaret Warren

University of Arkansas

Date Written: February 21, 2019

Abstract

We examine institutional investors’ trading activity during the period preceding firms’ annual disclosures regarding the effectiveness of internal controls over financial reporting (ICFR) required under Section 404(b) of the Sarbanes-Oxley Act (SOX). We find consistent evidence suggesting that some institutional investors (i.e., transient institutions with large overweighted positions) possess pre-announcement private information regarding forthcoming disclosures of material weakness in ICFR. In subsequent tests, we find that informed traders’ pre-announcement private information varies with the suspected level of corporate access (i.e., access to firm managers via investor conferences) provided to investors by our sample firms. Collectively, our evidence suggests that corporate access plays a major role in institutional investors’ development of pre-announcement private information in the post-Reg FD period.

Keywords: Informed Trading, Corporate Access, Internal Controls

JEL Classification: M41, M48

Suggested Citation

Cassell, Cory A. and Kleppe, Tyler J. and Pierce, Andrew T. and Warren, Margaret, Does Corporate Access Facilitate Informed Trading? Evidence from Trading in Advance of Internal Control Disclosures (February 21, 2019). Available at SSRN: https://ssrn.com/abstract=3239633 or http://dx.doi.org/10.2139/ssrn.3239633

Cory A. Cassell

University of Arkansas ( email )

Business Bldg. 454
Fayetteville, AR 72701
United States

Tyler J. Kleppe (Contact Author)

University of Arkansas ( email )

Fayetteville, AR 72701
United States

Andrew T. Pierce

University of Arkansas ( email )

Fayetteville, AR 72701
United States

Margaret Warren

University of Arkansas ( email )

Fayetteville, AR 72701
United States

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