Management earnings forecasts, insider trading, and information asymmetry

Anastasia Kraft; Bong Soo Lee; Kerstin Lopatta

doi:10.1016/j.jcorpfin.2014.03.002

Management earnings forecasts, insider trading, and information asymmetry

Anastasia Kraft, Bong Soo Lee^*, Kerstin Lopatta

^*Corresponding author for this work

Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review

62 Citations (Scopus)

Abstract

We investigate whether senior officers use accrual-based earnings management to meet voluntary earnings disclosure (i.e., management earnings forecasts) before selling or buying their own shares when they have private information. This study is the first to use the differences in timing of trades by senior officers and other insiders (e.g., directors or large shareholders) to infer information asymmetry. We hypothesize that the timing of senior officers' trades with no other insiders' trades at the same time indicates opportunistic trades and asymmetric information between senior officers and other insiders. Our results show that senior officers' exclusive sales are negatively associated with future returns, indicating that they tend to use insider information. Moreover, senior officers are more likely to meet their earnings forecasts when they plan to sell stocks. © 2014 Elsevier B.V.

Original language	English
Pages (from-to)	96-123
Journal	Journal of Corporate Finance
Volume	26
DOIs	https://doi.org/10.1016/j.jcorpfin.2014.03.002
Publication status	Published - Jun 2014
Externally published	Yes

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Publication details (e.g. title, author(s), publication statuses and dates) are captured on an “AS IS” and “AS AVAILABLE” basis at the time of record harvesting from the data source. Suggestions for further amendments or supplementary information can be sent to [email protected].

Research Keywords

Accruals
Earnings management
Information asymmetry
Insider trading
Meeting management earnings forecasts

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title = "Management earnings forecasts, insider trading, and information asymmetry",

abstract = "We investigate whether senior officers use accrual-based earnings management to meet voluntary earnings disclosure (i.e., management earnings forecasts) before selling or buying their own shares when they have private information. This study is the first to use the differences in timing of trades by senior officers and other insiders (e.g., directors or large shareholders) to infer information asymmetry. We hypothesize that the timing of senior officers' trades with no other insiders' trades at the same time indicates opportunistic trades and asymmetric information between senior officers and other insiders. Our results show that senior officers' exclusive sales are negatively associated with future returns, indicating that they tend to use insider information. Moreover, senior officers are more likely to meet their earnings forecasts when they plan to sell stocks. {\textcopyright} 2014 Elsevier B.V.",

keywords = "Accruals, Earnings management, Information asymmetry, Insider trading, Meeting management earnings forecasts",

author = "Anastasia Kraft and Lee, {Bong Soo} and Kerstin Lopatta",

note = "Publication details (e.g. title, author(s), publication statuses and dates) are captured on an “AS IS” and “AS AVAILABLE” basis at the time of record harvesting from the data source. Suggestions for further amendments or supplementary information can be sent to [email protected].",

year = "2014",

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doi = "10.1016/j.jcorpfin.2014.03.002",

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volume = "26",

pages = "96--123",

journal = "Journal of Corporate Finance",

issn = "0929-1199",

publisher = "Elsevier B.V.",

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TY - JOUR

T1 - Management earnings forecasts, insider trading, and information asymmetry

AU - Kraft, Anastasia

AU - Lee, Bong Soo

AU - Lopatta, Kerstin

N1 - Publication details (e.g. title, author(s), publication statuses and dates) are captured on an “AS IS” and “AS AVAILABLE” basis at the time of record harvesting from the data source. Suggestions for further amendments or supplementary information can be sent to [email protected].

PY - 2014/6

Y1 - 2014/6

N2 - We investigate whether senior officers use accrual-based earnings management to meet voluntary earnings disclosure (i.e., management earnings forecasts) before selling or buying their own shares when they have private information. This study is the first to use the differences in timing of trades by senior officers and other insiders (e.g., directors or large shareholders) to infer information asymmetry. We hypothesize that the timing of senior officers' trades with no other insiders' trades at the same time indicates opportunistic trades and asymmetric information between senior officers and other insiders. Our results show that senior officers' exclusive sales are negatively associated with future returns, indicating that they tend to use insider information. Moreover, senior officers are more likely to meet their earnings forecasts when they plan to sell stocks. © 2014 Elsevier B.V.

AB - We investigate whether senior officers use accrual-based earnings management to meet voluntary earnings disclosure (i.e., management earnings forecasts) before selling or buying their own shares when they have private information. This study is the first to use the differences in timing of trades by senior officers and other insiders (e.g., directors or large shareholders) to infer information asymmetry. We hypothesize that the timing of senior officers' trades with no other insiders' trades at the same time indicates opportunistic trades and asymmetric information between senior officers and other insiders. Our results show that senior officers' exclusive sales are negatively associated with future returns, indicating that they tend to use insider information. Moreover, senior officers are more likely to meet their earnings forecasts when they plan to sell stocks. © 2014 Elsevier B.V.

KW - Accruals

KW - Earnings management

KW - Information asymmetry

KW - Insider trading

KW - Meeting management earnings forecasts

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U2 - 10.1016/j.jcorpfin.2014.03.002

DO - 10.1016/j.jcorpfin.2014.03.002

M3 - RGC 21 - Publication in refereed journal

SN - 0929-1199

VL - 26

SP - 96

EP - 123

JO - Journal of Corporate Finance

JF - Journal of Corporate Finance

ER -

Management earnings forecasts, insider trading, and information asymmetry

Abstract

Bibliographical note

Research Keywords

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