The factors affecting illegal insider trading in firms with violations of GAAP

Thevenot, Maya

doi:10.1016/j.jacceco.2011.08.002

Cited by 43 publications

(29 citation statements)

References 36 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…To test for insider trading on the BTD components, we replace focus on R_TEMP/BI and R_PERM/BI and expect a positive coefficient on R_TEMP/BI. In addition to other accounting-based predictor variables, X and TaxMom, and the Guenther variables, we control for other factors affecting insider trading (Thevenot 2011;Huddart and Ke 2007;Richardson et al 2004;Roulstone 2003). Litigation is an indicator variable that equals one if a firm is in industries with high litigation risks, 34 and RDCAPEX, our investment variable, and G, earnings growth, are as previously defined.…”

Section: Insider Trading Analysesmentioning

confidence: 99%

Mispricing of Book-Tax Differences and the Trading Behavior of Short Sellers and Insiders

Sabrina

Pincus

Teoh

2013

The Accounting Review

View full text Add to dashboard Cite

We find evidence that investors misprice information contained in book-tax differences (BTDs), measured as the ratio of taxable income to book income, TI/BI. Low TI/BI predicts worse earnings growth and abnormal stock returns than high TI/BI. We find that short sellers and insiders arbitrage BTD mispricing, but the arbitrage is imperfect because of constraints on short selling and insider trading. Under SFAS No. 109 the predictability is stronger for TEMP/BI, the temporary component of TI/BI, which reflects greater managerial discretion. The results are incremental to a large set of known accruals-based anomaly predictors. We suggest that a sunshine policy of disclosing a reconciliation of book and taxable incomes can reduce mispricing of BTDs and improve capital market resource allocation.

show abstract

Section: Insider Trading Analysesmentioning

confidence: 99%

Mispricing of Book-Tax Differences and the Trading Behavior of Short Sellers and Insiders

Sabrina

Pincus

Teoh

2013

The Accounting Review

View full text Add to dashboard Cite

show abstract

“…Fu, Kraft and Zhang (2012) state that each financial report, in the broad sense, represents an opportunity to realize gains using private information, and the greater frequency of reports encourages the informed trader to acquire private information, thus increasing informational asymmetry. To Thevenot (2012), in the US market, the Sarbanes-Oxley Act is consistent with the concern that managers can negotiate using private information when the financial results are misrepresented. The use of this type of information in stock trading is referred to in the international literature as insider trading and qualifies as an unlawful practice in several markets (Cohen, Malloy, & Pomorski, 2012), given that one of the incentives for this practice is the opportunity to earn abnormal returns based on information on trades in the stock market that is unknown or undisclosed to the general public.…”

Section: Introductionmentioning

confidence: 95%

Assimetria de informação na negociação de ações, características econômico-financeiras e governança corporativa no mercado acionário brasileiro

Martins

Paulo

2014

Rev. contab. finanç.

View full text Add to dashboard Cite

This study sought to investigate the relationship between information asymmetry in the stock trading, economic and financial characteristics and corporate governance of listed companies in the Brazilian stock market in 2010 and 2011. To this end, the study relied on a theoretical framework for information asymmetry in the capital market to measure the asymmetry's magnitude based on the intraday stock-trading data of 194 companies. The primary results demonstrated that the informational asymmetry in the stock trading was positively related to the risk, return and liquidity of the shares as well as the cost of equity and the size of the companies. In addition, the asymmetry was negatively related to the abnormal return of shares. During the investigated period, the information asymmetry relationship with the liquidity and size (positive) and the abnormal return (negative) were at odds with previous research. The reasons for our results may be related to specific aspects of the Brazilian market, for example, in the case of abnormal returns, the deceleration of the Bovespa Index (IBovespa) or the reflection of the average return to negotiators without insider information during the period. In case of liquidity and size, the high index of issuance and negotiation of preferred shares may have influenced the results. Thus, this research contributes to the analysis of idiosyncratic characteristics of the capital market of a developing country, such as information asymmetry in stock trading and its association with the economic and financial characteristics and corporate governance of companies in the Brazilian stock market.

show abstract

“…More specifically, insider trading during the class period reflects the intent (scienter) of the insiders to benefit from the alleged fraud, and it can be used as inculpatory evidence by the plaintiffs to strengthen the merits of lawsuits (Billings 2008;Thevenot 2012). Insiders consequently engage in fewer trades when the perceived litigation risk is high Thevenot 2012). After a securities lawsuit, the defendant firm experiences an increase in the perceived litigation risk (Romano 1991;Core 1997;Narayanamoorthy 2005a and2005b).…”

Section: Does Shareholder Litigation Deter Insider Trading? I Introdmentioning

confidence: 99%

“…To control for the characteristics of sued firms, we use propensity-score matching models to construct a group of control firms that have a similar likelihood of being sued as the defendant firms in our sample. Following prior literature (e.g., Cheng and Lo 2006;Rogers 2008;Thevenot 2012) that uses the volumes of insider trading to proxy for the intensity of informed insider trading, we examine the change in the abnormal volumes of insider trading following lawsuits. We focus on the so-called C-suite executives (i.e., the highest level officers with "chief" in their titles, e.g., Chief Executive Officer (CEO), Chief Financial Officer (CFO), Chief Operating Officer (COO)) because they possess more private information and set the tone at the top (Skaife, Veenman, and Wangerin 2013).…”

Section: Does Shareholder Litigation Deter Insider Trading? I Introdmentioning

confidence: 99%

“…First, to the best of our knowledge, this is the first paper that examines the impact of actual private securities lawsuits on insider trading. Prior studies (Cheng and Lo 2006;Rogers 2008;Cohen et al 2012;Thevenot 2012) have demonstrated that informed insider trading decreases in the perceived risk of potential private securities litigation. These studies use ex ante perceived litigation occurrence risk to evaluate the deterrent effect of litigation on insider trading, and generally document a negative association between ex ante perceived litigation risk and insider trading intensity.…”

Section: Does Shareholder Litigation Deter Insider Trading? I Introdmentioning

confidence: 99%

See 1 more Smart Citation

Does Shareholder Litigation Deter Insider Trading?

Cheng

Huang

2016

LFA

View full text Add to dashboard Cite

This paper examines the possible deterrent effect of actual shareholder litigation on insider trading behavior for both defendant firms and their industry peers. We construct a composite index to capture the strength of a lawsuit as reflected in its merits and the rigorousness of the litigation process. Using a large litigation sample from 1996 to 2009, we find a significant decrease in the intensity of the insider stock sales for defendant firms following lawsuits that score high in the composite strength index. Further analyses indicate that the decrease is mainly driven by the decline in opportunistic insider selling. We also find the decrease to be more pronounced when the defendant firm also reduces its earnings management following the litigation. Finally, we find a significant decrease in insider selling for industry peers of defendant firms following strong lawsuits. This paper provides the first evidence on the existence of and variations in the deterrent effect of class action lawsuits on insider trading.

show abstract

The factors affecting illegal insider trading in firms with violations of GAAP

Cited by 43 publications

References 36 publications

Mispricing of Book-Tax Differences and the Trading Behavior of Short Sellers and Insiders

Mispricing of Book-Tax Differences and the Trading Behavior of Short Sellers and Insiders

Assimetria de informação na negociação de ações, características econômico-financeiras e governança corporativa no mercado acionário brasileiro

Does Shareholder Litigation Deter Insider Trading?

Contact Info

Product

Resources

About