Insider Trading and Earnings Reporting: Evidence of Managerial Optimism or Opportunism?
28 Pages Posted: 13 Sep 2003
Date Written: July 2003
This study examines managerial ethics with regard to earnings reporting and insider trading. Managers of firms with optimistic forecasts or firms with higher Street earnings versus GAAP earnings are considered candidates to be misleading investors. Two hypotheses are examined: 1) that these managers are indeed misleading investors and taking advantage of their deception by selling shares of their firms' stock at inflated prices (the managerial opportunism hypothesis) and 2) that these managers are not misleading investors, but merely believe the optimism surrounding their firms (the managerial optimism hypothesis). The tests find that managers who are candidates for misleading investors to opportunistically sell shares are actually behaving ethically. They buy relatively more shares than other managers, providing support for the managerial optimism hypothesis.
Keywords: analysts, forecasts, ethics, managerial opportunism
JEL Classification: D82, G14, G29, M41
Suggested Citation: Suggested Citation