Insider Profitability and Public Information: Evidence From the XBRL Mandate

Abstract

Using XBRL as a quasi-natural experiment, we examine whether the mandated improvement on financial information presentation attenuates the profitability of insiders’ trades. We provide unique insights on how insiders profit from publicly available information. We find that XBRL adoption attenuates insider sale profits and has no effect on insider purchases. Further analyses reveal three channels through which the insiders extract informational advantage from publicly available information: the quantity, quality, and presentation of information. XRBL successfully disrupts these channels. Our results survive robustness tests including a regression discontinuity design, a matched sample difference-in-difference method, and placebo tests.

Keywords: XBRL, insider trading, information processing costs, public information

JEL Classification: G14, M48