Characteristics of a Firm's Information Environment and the Information Asymmetry between Insiders and Outsiders

Posted: 29 Dec 2003

See all articles by Richard M. Frankel

Richard M. Frankel

Washington University in Saint Louis - Olin Business School

Xu Li

School of Business; University of Texas at Dallas - Department of Accounting & Information Management

Abstract

We examine how financial statement informativeness, analyst following, and news, relate to the information asymmetry between insiders and outsiders. Corporations' timely disclosures of value relevant information and information collection by outsiders reduce information asymmetry, limiting insiders' ability to trade profitably on private information. We use the profitability and intensity of insider trades to proxy for information asymmetry. We find that increased analyst following is associated with reduced profitability of insider trades and reduced insider purchases. Financial statement informativeness is negatively associated with the frequency of insider purchases. However, company news, good or bad, is positively associated with insider purchase frequency.

JEL Classification: G12, G29, M41, M45

Suggested Citation

Frankel, Richard M. and Li, Xu, Characteristics of a Firm's Information Environment and the Information Asymmetry between Insiders and Outsiders. Journal of Accounting & Economics, Vol. 37, No. 2, pp. 229-259, 2004. Available at SSRN: https://ssrn.com/abstract=482063

Richard M. Frankel (Contact Author)

Washington University in Saint Louis - Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Xu Li

School of Business ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

University of Texas at Dallas - Department of Accounting & Information Management ( email )

2601 North Floyd Road
Richardson, TX 75083-0688
United States

Register to save articles to
your library

Register

Paper statistics

Abstract Views
3,109
PlumX Metrics
!

Under construction: SSRN citations while be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information