Insider Trading and Voluntary Disclosures

51 Pages Posted: 1 Mar 2004 Last revised: 16 Apr 2013

See all articles by Qiang Cheng

Qiang Cheng

Singapore Management University

Kin Lo

University of British Columbia (UBC) - Sauder School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: May 2006


We hypothesize that insiders strategically choose disclosure policies and the timing of their equity trades to maximize trading profits, subject to the litigation costs associated with disclosure and insider trading. Accounting for endogeneity between disclosures and trading, we find that when managers plan to purchase shares, they increase the number of bad news forecasts to reduce the purchase price. In addition, this relation is stronger for trades initiated by chief executive officers than those initiated by other executives. Confirming this strategic behavior, we find that managers successfully time their trades around bad news forecasts, buying fewer shares beforehand and more afterwards. We do not find that managers adjust their forecasting activity when they are selling shares, consistent with higher litigation concerns associated with insider sales. Overall, our evidence suggests that insiders do exploit voluntary disclosure opportunities for personal gain, but only selectively, when litigation risk is sufficiently low.

Keywords: Voluntary Disclosure, Management Forecasts, Insider Trading

JEL Classification: G30, K22, M40

Suggested Citation

Cheng, Qiang and Lo, Kin, Insider Trading and Voluntary Disclosures (May 2006). Sauder School of Business Working Paper, Journal of Accounting Research, Forthcoming, Available at SSRN: or

Qiang Cheng (Contact Author)

Singapore Management University ( email )

60 Stamford Road
Singapore, 178900

Kin Lo

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
604-822-8430 (Phone)
604-822-9470 (Fax)


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