To Trade or Not to Trade: The Strategic Trading of Insiders around News Announcements

We argue that insiders' decisions to trade in short windows before news announcements are likely to result from a trade-off between the incentives to capitalize on the foreknowledge of the disclosure and the risk of regulatory scrutiny and lost reputation. We provide evidence that insider buying is driven by the trade-off, while selling is primarily influenced by the deterring effect of the regulatory and reputation risks. We show that insiders strategically choose the amount of shares bought ahead of good news announcements. They increase their purchases as the price impact of the news goes up, but we find that the amount of shares purchased levels off as the news becomes extreme. In contrast, we find that the probability of insider selling significantly decreases with the price impact of the forthcoming bad news. To further support our arguments on the importance of incentives and disincentives to trade, we show that the strategic trading is mainly observed in the most price-sensitive groups of news announcements, it is clearly pronounced for best informed executives (CEOs), and that trading patterns change with changes in regulations, and insiders with higher reputation at risk limit their trading ahead of bad news.insider trading, private information, information disclosure, regulation

The use of earnings and operations management to avoid credit rating downgrades

Firms placed on negative credit watch face the threat of a credit rating downgrade. At the same time, they are given the opportunity to put recovery efforts in place to retain their current credit rating. In this paper, we test to what extent firms use earnings management as a short-term recovery strategy. We find that both accruals-based and real earnings management are associated with firms avoiding credit rating downgrades, and that these alternative earnings management strategies tend to be complements rather than substitutes. However, following the passage of the Sarbanes–Oxley Act, only real earnings management is significantly associated with the credit watch outcome. We find evidence that firms which maintain their rating via earnings management are better able to afford the inevitable earnings reversals, and that in the year following the credit watch period, the credit rating performance of these firms is significantly better than firms which undergo a downgrade, with fewer downgrades and more upgrades in this period. Our results also imply that credit rating agencies are not misled by earnings management but rather allow for some discretion in reporting earnings that facilitates the dissemination of private information about future firm performance

CRISIS AFAR: an international collaborative study of the impact of the COVID-19 pandemic on mental health and service access in youth with autism and neurodevelopmental conditions

BackgroundHeterogeneous mental health outcomes during the COVID-19 pandemic are documented in the general population. Such heterogeneity has not been systematically assessed in youth with autism spectrum disorder (ASD) and related neurodevelopmental disorders (NDD). To identify distinct patterns of the pandemic impact and their predictors in ASD/NDD youth, we focused on pandemic-related changes in symptoms and access to services.MethodsUsing a naturalistic observational design, we assessed parent responses on the Coronavirus Health and Impact Survey Initiative (CRISIS) Adapted For Autism and Related neurodevelopmental conditions (AFAR). Cross-sectional AFAR data were aggregated across 14 European and North American sites yielding a clinically well-characterized sample of N = 1275 individuals with ASD/NDD (age = 11.0 ± 3.6 years; n females = 277). To identify subgroups with differential outcomes, we applied hierarchical clustering across eleven variables measuring changes in symptoms and access to services. Then, random forest classification assessed the importance of socio-demographics, pre-pandemic service rates, clinical severity of ASD-associated symptoms, and COVID-19 pandemic experiences/environments in predicting the outcome subgroups.ResultsClustering revealed four subgroups. One subgroup-broad symptom worsening only (20%)-included youth with worsening across a range of symptoms but with service disruptions similar to the average of the aggregate sample. The other three subgroups were, relatively, clinically stable but differed in service access: primarily modified services (23%), primarily lost services (6%), and average services/symptom changes (53%). Distinct combinations of a set of pre-pandemic services, pandemic environment (e.g., COVID-19 new cases, restrictions), experiences (e.g., COVID-19 Worries), and age predicted each outcome subgroup.LimitationsNotable limitations of the study are its cross-sectional nature and focus on the first six months of the pandemic.ConclusionsConcomitantly assessing variation in changes of symptoms and service access during the first phase of the pandemic revealed differential outcome profiles in ASD/NDD youth. Subgroups were characterized by distinct prediction patterns across a set of pre- and pandemic-related experiences/contexts. Results may inform recovery efforts and preparedness in future crises; they also underscore the critical value of international data-sharing and collaborations to address the needs of those most vulnerable in times of crisis

The impact of personal attributes on corporate insider trading

We analyze the importance of personal attributes in explaining the performance of reported share transactions by corporate insiders. While prior literature has focused on observable firm and trade characteristics, little effort has been made to understand how individual attributes, such as skills, abilities, or personality, impact upon post-trade abnormal returns. We document that personal attributes explain up to a third of the variability in insider trading performance and dominate unobservable and observable firm and trade characteristics by a sizeable margin. Personal attributes are correlated with the insider’s year of birth, education and gender, and matter more in companies with greater information asymmetry and when outsiders are inattentive to public information. We shed also new light on the significance of executive hierarchy and regulations in explaining insider trading performance and highlight the importance of controlling for individual fixed effects in insider trading research to avoid omitted variable bias in estimated regression coefficients

Why does shareholder protection matter for abnormal returns after reported insider purchases and sales?

We use a unique data set of more than 240,000 reported insider transactions across 15 European countries and the USA to analyze the link between country-level shareholder protection and abnormal returns following insider trades. We show that abnormal returns after insider transactions are positively correlated with country-level shareholder protection against expropriation by corporate insiders, which supports the information-content hypothesis. Market reaction to insider purchases increases with shareholder protection because shareholder protection enhances the transparency and trustworthiness of insiders’ actions, and limits possibilities for direct profit diversion, so that more information is eventually reflected in stock prices. For insider sales, shareholder protection decreases their negative information content. We conjecture that this is due to the effect of greater transparency and trustworthiness strengthening the diversification and liquidity reasons for selling in better shareholder protection countries. We find limited support for the rent-extraction hypothesis that conjectures that shareholder protection is associated with insider trading dollar profits. Highlights - We analyze the effect of shareholder protection on CARs after insider trades. - We cover reported insider transactions across 15 European countries and the US. - Higher ASD index is associated with higher abnormal returns for purchases and sales. - For purchases, CARs are higher when insider’s actions are more trustworthy. - For sales, selling for liquidity reasons is trusted more in high ASD countries