Insider Trading and Earnings Management

Sawicki, Julia; Shrestha, Keshab

doi:10.1111/j.1468-5957.2008.02075.x

Cited by 70 publications

(57 citation statements)

References 42 publications

(48 reference statements)

Supporting

Mentioning

Contrasting

Order By: Relevance

“…This finding is consistent with Sawicki and Shrestha (2008), who show that aggregate share sales over the fiscal year are associated with income-increasing abnormal accruals. Although the coefficient on LIQ (0.0091) is higher than the coefficient on SELL-NOX (0.0069) in Model 3, an F -test suggests that the coefficients are not statistically different.…”

Section: (Ii) Option Exercises Share Trades and Earnings Managementsupporting

confidence: 92%

Decomposing Executive Stock Option Exercises: Relative Information and Incentives to Manage Earnings

Veenman

Hodgson²,

Praag³

et al. 2011

Business Fin & Account

View full text Add to dashboard Cite

This paper examines the information content of stock option exercises versus regular insider share trades by corporate executives. We argue that the asymmetric payoff structure of options makes managerial wealth -compared to holdings of shares -relatively more sensitive to stock price changes and more likely induces opportunistic behaviour. Consistent with our predictions, we find option exercises followed by share liquidations are associated with disappointing future earnings news, while sales of previously held shares are not. In addition, liquidation exercises of deep in-the-money options are associated with larger incomeincreasing abnormal accruals, signalling lower quality earnings. On the buy side, we find that regular insider share purchases are associated with positive future earnings news while purchases through option conversions are not. This research has implications for investors, compensation committees, and future research on corporate insider trades.

show abstract

Section: (Ii) Option Exercises Share Trades and Earnings Managementsupporting

confidence: 92%

Decomposing Executive Stock Option Exercises: Relative Information and Incentives to Manage Earnings

Veenman

Hodgson²,

Praag³

et al. 2011

Business Fin & Account

View full text Add to dashboard Cite

show abstract

“…This is the key paper that provides a testable theoretical framework to motivate empirical studies on market overvaluation as a motivation for firms to manipulate earnings. Sawicki and Shrestha (2008) compare abnormal accruals across different quintiles of firms ranked by book-to-market ratio, and document no clear pattern suggesting that the level of accruals management is related to mispricing. Madhogarhia et al (2009) find that growth firms manage earnings, in both directions, more aggressively than value firms, due to the more severe asymmetric information.…”

Section: Ii2 Why Study Long-term Real Operation Management By Highlmentioning

confidence: 92%

Highly Valued Equity and Real Operation Management: Long-Term 'Detoxification'

Duong

2010

SSRN Journal

View full text Add to dashboard Cite

This paper find evidence that in five years after being highly valued, firms consistently manage earnings downwards via spending more discretionary expenses and underproduction. Moreover, I find that such income-decreasing real operation management is only observable when the high valuation is firm-specific but not when the market highly values the whole industry. My long-term real operation management evidence is, therefore, in line with the signaling hypothesis which predicts highly valued firms would manipulate earnings downwards as a signal to correct the market. Put together with the short-term opportunistic income-increasing accruals management, the general picture is in line with a scenario where highly valued firms signal to correct the market in long-term while trying to avoid an immediate price correction in short-term.

show abstract

“…These studies not only provide evidence that insiders have timing ability to disclose private information to the market, but also demonstrate a "regular" trading pattern where insiders usually buy (sell) before good (bad) news and when the share prices are low (high), thus causing significant share price increases (decreases). Sawicki and Shrestha (2008) find evidence that insiders manipulate earnings downwards (upwards) prior to buying (selling) to enhance their profits. Many studies find that insider trading activity increases around a specific corporate event.…”

Section: Literature Reviewmentioning

confidence: 97%