Accounting Conservatism and the Profitability of Corporate Insiders
Journal of Business Finance and Accounting, Forthcoming
60 Pages Posted: 22 Apr 2019 Last revised: 16 Jan 2020
Date Written: October 20, 2019
We predict that accounting conservatism influences insiders' opportunities to speculate on good and bad news, and thus, insider trading profitability. We find that greater conditional (unconditional) conservatism is associated with lower (higher) insiders' profitability from sales. We find limited evidence that conservatism influences profitability from purchases. These findings are consistent with our hypotheses on the different informational roles of conditional and unconditional conservatism, and on the asymmetric influence of conservatism over the opportunities to speculate on good versus bad news. Our research design takes into consideration the endogenous nature of insiders' trading and conservatism. The results are robust to different measures of conservatism and a number of additional analyses.
Keywords: conditional conservatism, unconditional conservatism, insider trading sales and purchases, profitability from insider trading
JEL Classification: G30, M41
Suggested Citation: Suggested Citation