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Insider Trades and Private Information: The Special Case of Delayed-Disclosure Trades

Shijun Cheng¹; Venky Nagar²; Madhav V. Rajan³

¹ University of Maryland, College Park · ² University of Michigan–Ann Arbor · ³ Stanford University

In certain circumstances, insider trades such as private transactions between executives and their firms could be disclosed after the end of the firm's fiscal year, on a Form-5 filing. We find that insider sales disclosed in such a delayed manner for large firms are predictive of negative future returns (−6 to −8 percent), as well as lower future annual earnings relative to analyst forecasts. These results stand in contrast to existing findings on the uninformativeness of quickly disclosed open-market insider sales. The Sarbanes-Oxley Act curtailed the use of Form 5 under the presumption that managers used this vehicle opportunistically. Our systematic evidence supports this presumption.

DOI

10.1093/rfs/hhm029

Volume

20 (6)

Pages

1833-1864

Language

en

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