Geographic Proximity and Insider Trading: Evidence from COVID-19
48 Pages Posted: 23 Aug 2020 Last revised: 25 Aug 2020
Date Written: May 29, 2020
We examine the role of geographic proximity and attentiveness on insider stock sales during the initial phases of the COVID-19 pandemic. We expect that insiders of firms with operational connections to China (“China insiders”) were more attentive to, and better understood, the implications of publicly available information about COVID-19 and acted upon it sooner than insiders at firms without operational connections to China (“non-China insiders”). We find that the stock sales of China insiders exhibit a significantly larger increase in profitability following the beginning of the pandemic than those of non-China insiders, largely driven by China insiders selling stock more frequently and earlier in the COVID-19 period than non-China insiders. Our results are consistent with China insiders anticipating declines in their firms’ stock that were driven by the systematic effects of COVID-19 ahead of other market participants. Our paper contributes to the insider trading literature which has otherwise found little evidence that corporate insider stock sales precede a market-driven stock price decline. The results also contribute to the emerging literature examining the economic and financial market effects of the COVID-19 pandemic.
Keywords: Insider trading, China operations, pandemic, COVID-19, Coronavirus
JEL Classification: G14, G01, G30, D80
Suggested Citation: Suggested Citation