Are All Insider Sales Created Equal? New Evidence from Form 4 Footnote Disclosures

Amel-Zadeh, Amir, Faasse, Jonathan and Lotz, Juliane (2016) Are All Insider Sales Created Equal? New Evidence from Form 4 Footnote Disclosures. Said Business School Working Paper 2016-29.

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Abstract

We provide new evidence on the information content of insider sales using SEC Form 4 footnote disclosures. Extracting and analysing the descriptions about the nature of the insider sale contained in Form 4 footnotes, we are able to distinguish discretionary from nondiscretionary insider sales. We find that discretionary insider sales are informative to investors and produce significantly lower abnormal returns to the trade filing than nondiscretionary sales. Consistent with investors not fully reacting to the information in these footnotes we find that discretionary insider sales are highly predictive of future negative stock returns and are associated with a higher propensity of analyst downgrades, larger negative earnings surprises and a higher likelihood of future litigation. Our findings suggest that insiders strategically use footnote disclosures describing liquidity-motivated sales to disguise information-based sales.

Item Type: Oxford Saïd Research Paper
Keywords: Insider sales, Form 4 filings, disclosure, textual analysis
Subject(s): Professional services
Date Deposited: 05 Dec 2016 14:59
Last Modified: 05 Dec 2016 14:59
Funders: N/A
URI: http://eureka.sbs.ox.ac.uk/id/eprint/6258

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