Geographic Connection and Insider Trading: Evidence from COVID-19

54 Pages Posted: 23 Aug 2020 Last revised: 20 Jul 2021

See all articles by Erin Henry

Erin Henry

University of Arkansas - Department of Accounting

George A. Plesko

University of Connecticut School of Business

Caleb Rawson

University of Arkansas - Department of Accounting

Date Written: May 29, 2020

Abstract

The COVID-19 crash provides a unique identification opportunity to study insiders’ informational
advantages due to its sudden and exogenous nature. We find that the sales of insiders at firms with
connections to China were significantly more profitable during the COVID-19 crisis than the sales
of insiders at firms without connections to China. Consistent with greater attentiveness to public
information about the COVID-19 pandemic, this result is driven by China connected insiders
executing larger (smaller) sales in the early (late) COVID-19 period than non-China connected
insiders. We find our results are driven by trades that are not preplanned under Rule 10b5-1 and
are consistent with anticipation of the systematic market effects of COVID-19 on an insider’s firm
as opposed to firm-specific effects. Aggregate China-connected insider trades also predict market
returns during the COVID period. Our study contributes to the insider trading literature by
introducing geographic connection to market-wide information as a source of public information
advantage and to regulatory efforts to investigate and understand corporate insider behavior related to the COVID-19 pandemic.

Keywords: Insider trading, China operations, pandemic, COVID-19, Coronavirus

JEL Classification: G14, G01, G30, D80

Suggested Citation

Henry, Erin and Plesko, George A. and Rawson, Caleb, Geographic Connection and Insider Trading: Evidence from COVID-19 (May 29, 2020). University of Connecticut School of Business Research Paper No. 21-04, Available at SSRN: https://ssrn.com/abstract=3678121 or http://dx.doi.org/10.2139/ssrn.3678121

Erin Henry

University of Arkansas - Department of Accounting ( email )

Business Bldg. 454
Fayetteville, AR 72701
United States

George A. Plesko

University of Connecticut School of Business ( email )

School of Business
Storrs, CT 06269-2041
United States
860-486-6421 (Phone)

Caleb Rawson (Contact Author)

University of Arkansas - Department of Accounting ( email )

Business Bldg. 454
Fayetteville, AR 72701
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
206
Abstract Views
1,992
rank
181,556
PlumX Metrics