Geographic Connections to China and Insider Trading at the Start of the COVID-19 Pandemic

54 Pages Posted: 23 Aug 2020 Last revised: 4 Apr 2022

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 sudden and exogenous nature of the COVID-19 crash provides a unique identification opportunity to study insiders’ informational advantages. 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

JEL Classification: G14, G01, G30, D80

Suggested Citation

Henry, Erin and Plesko, George A. and Rawson, Caleb, Geographic Connections to China and Insider Trading at the Start of the COVID-19 Pandemic (May 29, 2020). Review of Accounting Studies, Forthcoming, 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

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