Essays on Investigating the Revelation of Information Content

Abstract

This dissertation consists of three essays on corporate finance. The first essay studies the differential information content on a firm’s fundamentals of top executives’ insider trades. It is well understood that a CEO and a CFO have played very different roles in achieving the goal of a firm. A CEO manages a firm largely from a strategic perspective, while a CFO focuses more on the tactical aspect. However, it is very difficult to assess their economic contributions separately because we only observe their joint action and overall firm performance on the firm level. As a novel approach, we analysis their insider trading activities and the firm’s following fundamentals changes in this study to understand their different roles in affecting the firm as a nature experiment. Our results suggests that a CEO have large impact on a firm’s long term persistent performance while a CFO affects the firm’s short-term cyclical performance. Moreover CEOs also tend to be more conservative in investment after additional purchase. This finding is consistent with the fact that they have different responsibilities in managing the firm. The second essay, included in Chapter 2, also deals with the topic of information content on executives’ insider trading activities. Instead of concentrating on purchases, we study whether the executive’s insider sales also reflect firm’s fundenmentals and compare the information content contained in CEOs’ and CFOs’ trades. This study highlights the nuanced differences in trading behaviors between CEOs and CFOs and underscores the importance of sales trades as indicators of future firm events and the firm’s fundamentals. These insights contribute to the broader understanding of insider trading dynamics and their implications for market efficiency. The third essay, included in Chapter 3, is ”The Real Effects of Cybersecurity Breaches on Firms and Managers’ Attentiveness”. This study explores the adverse impact of information breaches and the impact of managers’ attentiveness, measured by the time managers need to identify the breaches. We find that the time lag from when the breach is identified to when the announcement is made affects the market reaction and the firm’s operating performance. The time lag has a quadratic relationship with the cumulative abnormal return in the short term and with earnings in the long term. Also, the firms tend to react quickly to security breaches (14.5 days early) when they have a technical-related chief officer