Does Stardom Affect the Informativeness of a CEO’s Insider Trades?

Sabherwal, Sanjiv; Uddin, Mohammad Riaz

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Does Stardom Affect the Informativeness of a CEO’s Insider Trades?

Forthcoming, Journal of Business Finance and Accounting

54 Pages Posted: 23 Oct 2019

See all articles by Sanjiv Sabherwal

Sanjiv Sabherwal

University of Texas at Arlington - Department of Finance and Real Estate

Mohammad Riaz Uddin

American University of Beirut - Olayan School of Business

Date Written: October 9, 2019

Abstract

This study examines whether the celebrity or star status of a chief executive officer (CEO) affects the informativeness of his insider trades. Using three different measures to identify star CEOs in a sample of S&P 1500 firms, we find that trades of non-star CEOs predict future abnormal returns and earnings innovations and that trades of star CEOs do not. The predictive power of non-star CEO trades is mostly attributable to opportunistic trades, not routine trades. We also find evidence suggesting that the abnormal returns associated with non-star CEO insider trades are due to the lower visibility and consequently less scrutiny of non-star CEOs compared with star CEOs.

Keywords: star, chief executive officer, insider trading, opportunistic trade, routine trade

JEL Classification: G14, G23, G29

Suggested Citation: Suggested Citation

Sabherwal, Sanjiv and Uddin, Mohammad Riaz, Does Stardom Affect the Informativeness of a CEO’s Insider Trades? (October 9, 2019). Forthcoming, Journal of Business Finance and Accounting, Available at SSRN: https://ssrn.com/abstract=3469239