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

See all articles by Akram Khalilov

Akram Khalilov

Universidad Carlos III de Madrid - Department of Business Administration

Beatriz Garcia Osma

Universidad Carlos III de Madrid - Department of Business Administration

Date Written: October 20, 2019

Abstract

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

Khalilov, Akram and Garcia Osma, Beatriz, Accounting Conservatism and the Profitability of Corporate Insiders (October 20, 2019). Journal of Business Finance and Accounting, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3362468 or http://dx.doi.org/10.2139/ssrn.3362468

Akram Khalilov (Contact Author)

Universidad Carlos III de Madrid - Department of Business Administration ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain

Beatriz Garcia Osma

Universidad Carlos III de Madrid - Department of Business Administration ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain

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