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
License
This work is licensed under a Creative Commons Attribution 4.0 International License.
Recommended Citation
Gu, Xiaozhe, "The timing of insider trading and management forecast credibility" (2022). Accounting Dissertations. 41.
https://mavmatrix.uta.edu/accounting_dissertations/41
Comments
Degree granted by The University of Texas at Arlington