Xiaozhe Gu

ORCID Identifier(s)

0000-0003-4526-4029

Graduation Semester and Year

2022

Language

English

Document Type

Dissertation

Degree Name

Doctor of Philosophy in Accounting

Department

Accounting

First Advisor

Nandu Nagarajan

Abstract

In this paper, I study how past insider trading patterns affect management forecast credibility. I first hypothesize and find that, due to litigation concerns, executives are unlikely to use a “pump-and-dump” strategy to maximize trading profits. Instead, they issue more accurate and conservative management earnings forecasts before insider sales. I then document that insider sales after forecasts have signaling content. Specifically, firms where a higher fraction of insider sales occurs shortly after the forecast enjoy higher forecast credibility in the future. This effect is more pronounced when firms are difficult to value and less pronounced when firms show traces of upward earnings management. Additional analysis suggests that my result is not driven by rule 10b5-1 trades or the existence of voluntary insider trading restriction policies, and that managers intending to sell after their forecasts are motivated to have strong internal control systems to assure forecast accuracy. Finally, I show that a history of issuing upwardly biased forecasts shortly before insider sales tarnishes future forecast credibility.

Keywords

Insider trading, Management forecast

Disciplines

Accounting | Business

Comments

Degree granted by The University of Texas at Arlington

Download

Included in

Accounting Commons

Share

COinS