Does Stardom Affect the Informativeness of a CEO'S Insider Trades?

30 Pages Posted: 27 May 2020

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/November 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: chief executive officer, insider trading, opportunistic trade, routine trade, star

JEL Classification: G14, G23, G29

Suggested Citation

Sabherwal, Sanjiv and Uddin, Mohammad Riaz, Does Stardom Affect the Informativeness of a CEO'S Insider Trades? (October/November 2019). Journal of Business Finance & Accounting, Vol. 46, Issue 9-10, pp. 1171-1200, 2019, Available at SSRN: https://ssrn.com/abstract=3605619 or http://dx.doi.org/10.1111/jbfa.12412

Sanjiv Sabherwal (Contact Author)

University of Texas at Arlington - Department of Finance and Real Estate ( email )

Box 19449 UTA
Arlington, TX 76019
United States
817-272-3705 (Phone)
817-272-2252 (Fax)

Mohammad Riaz Uddin

American University of Beirut - Olayan School of Business ( email )

Bliss Street
Beirut 1107 2020
Lebanon

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