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How do insider trading incentives shape nonfinancial disclosures? Evidence from product and business expansion disclosures

He, G.

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Abstract

Nonfinancial disclosures of product and business expansion planning occur frequently in practice and are an important vehicle by which managers convey corporate information to outsiders. However, little is known about how the opportunistic incentives of managers affect the choice of such nonfinancial disclosures. This study examines whether managers make their nonfinancial disclosures strategically for self-serving trading incentives. I find strong and robust evidence to suggest that managers manipulate the timing and selectivity of their nonfinancial disclosures in an attempt to maximize trading profits. Specifically, managers tend to disclose bad (good) news on products or business expansion before purchasing (selling) shares. I also find that such strategic behavior is more evident when the expected price impact of the disclosures is greater and when the CEOs are more powerful. However, I do not find evidence that the strategic behavior is weaker for firms with high institutional stock ownership. Overall, my results contribute to understanding managers’ strategic use of nonfinancial disclosures in fulfilling personal trading incentives, and should be of interest to boards of directors charged with the responsibility of monitoring and restricting opportunistic managerial disclosures and insider trades.

Citation

He, G. (2023). How do insider trading incentives shape nonfinancial disclosures? Evidence from product and business expansion disclosures. Review of Quantitative Finance and Accounting, 60(1), 147-194. https://doi.org/10.1007/s11156-022-01093-5

Journal Article Type Article
Acceptance Date Jul 25, 2022
Online Publication Date Aug 20, 2022
Publication Date 2023-01
Deposit Date Jul 25, 2022
Publicly Available Date Mar 14, 2023
Journal Review of Quantitative Finance & Accounting
Print ISSN 0924-865X
Electronic ISSN 1573-7179
Publisher Springer
Peer Reviewed Peer Reviewed
Volume 60
Issue 1
Pages 147-194
DOI https://doi.org/10.1007/s11156-022-01093-5
Keywords managerial incentives; product and business expansion disclosures; insider trades
Public URL https://durham-repository.worktribe.com/output/1199613

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