We examine whether and how product market competition affects insider trading profitability. We empirically show that the insiders of firms in highly competitive industries make higher abnormal profits. Our identification strategy includes both a quasi-natural experiment setting and an instrumental variable approach to address endogeneity concerns. We also run an extensive array of robustness checks and find that our baseline results remain substantially unchanged. Our cross-sectional analyses show that insider trading profitability is more pronounced for firms with: a higher level of trade secrecy, a higher level of R&D, a lower level of management voluntary disclosures, less readable 10-K reports and highly tone-ambiguous financial disclosures. We also find that our results are robust to the inclusion of corporate governance mechanisms. Overall, this study is consistent with the theoretical predictions that support the information asymmetry and proprietary cost channels of competition and that increases in competition lead insiders to undertake more rent-seeking activity.

Do overconfident chief executive officers (CEOs) misjudge the political risks faced by their firms and, as a result, reduce their engagement in corporate lobbying? We examine this question by comparing the lobbying activities of firms led by overconfident CEOs with those led by nonoverconfident peers. Using a sample of 1369 U.S. firms from 2002 to 2023, we find that overconfident CEOs invest significantly less in corporate lobbying than nonoverconfident CEOs. This finding is robust across a wide range of alternative measures and model specifications. Our identification strategy exploits exogenous CEO turnover events and matched-sample regressions. Cross-sectional analyses further indicate that overconfident CEOs do not view lobbying as a risk-reducing response to political uncertainty. Overall, the results are consistent with CEO overconfidence bias: overconfident CEOs place excessive reliance on their own abilities and underutilize lobbying as a safeguard against political risk.

Motivated by the theoretical literature on firms' choice between bank loans and public debt, this paper analyzes whether more able managers choose a higher fraction of public debt. We find that firms with more able managers choose a higher level of public debt. We also find that the use of public debt by more able managers is positively associated with wealth creation for shareholders and negatively associated with bankruptcy risk. Our cross-sectional analyses suggest that this baseline relationship is conditional on a better information environment. We address endogeneity issues in multiple ways and run an extensive array of robustness checks. Overall, our findings are consistent with the prediction that managerial ability mitigates the information monopoly of banks.

We investigate whether CEOs strategically increase information uncertainty surrounding their insider stock purchases. We find that in the month before and during CEO stock purchases, information uncertainty in their news releases increases, which correlates with lower stock prices. This finding is not evident in the month after insider purchases and thus suggests CEOs’ strategic behavior. Our key findings of strategic information uncertainty are confirmed using multi-faceted fixed effects regressions, a quasi-natural experimental design, and numerous other robustness checks.