Insider Trading and Strategic Disclosure

Abstract

I show that public companies disproportionately disclose positive news on days when corporate executives sell shares under predetermined Rule 10b5-1 plans. I find that the likelihood, share volume and dollar volume of insider sales under 10b5-1 plans are higher when good news is disclosed, and each of these are higher when the disclosed news is better. Disclosure of good news on Rule 10b5-1 selling days is greatest in the health care sector and among mid-cap firms. I show that stock prices reverse after high levels of Rule 10b5-1 selling on positive news days, and that the price reversal increases with the share volume of Rule 10b5-1 selling. I show that, whatever might be said about health care executives’ advantageous stock sales as they developed vaccines during the pandemic of 2020, those sales were not uncommon.

Keywords: insider, trading, information, finance, law, 10b5-1

JEL Classification: G14, K22