Geographic Connections to China and Insider Trading at the Start of the COVID-19 Pandemic
Review of Accounting Studies, Forthcoming
54 Pages Posted: 23 Aug 2020 Last revised: 4 Apr 2022
Date Written: May 29, 2020
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: Suggested Citation