Does High-Quality Corporate Communication Reduce Insider Trading Profitability

D. van Geyt (), P. van Cauwenberge () and H. Vander Bauwhede ()
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H. Vander Bauwhede: -

Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium from Ghent University, Faculty of Economics and Business Administration

Abstract: Manuscript Type: Empirical Research Question/Issue: Using a unique database on insider trading in Belgium, we investigate whether high-quality corporate communication, as proxied by disclosure scores of professional financial analysts, reduces the profitability of insider trading. Research Findings/Insights: We find a significant negative association between corporate communication quality and insider trading profitability. Closer inspection of the different communication channels shows that the quality of press releases and investor relation activities is more relevant in explaining insiders’ abnormal returns than the quality of annual reports and corporate websites. Theoretical/Academic Implications: This study provides evidence that high-quality communication contributes to reducing insider trading profitability and information asymmetry. In addition, the quality of voluntary disclosure channels like press releases and investor relation activities seems to be relatively more effective in reducing information asymmetry than mandatory annual reports. Practitioner/Policy Implications: Our findings demonstrate concrete benefits of high-quality communication. In particular, outside investors benefit from better communication as it creates more of a level playing field between investors. Also, companies benefit from better communication as it reduces information asymmetry, which in turn results in a lower cost of capital.

Pages: 2 pages
Date: 2011-05
New Economics Papers: this item is included in nep-mst
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Persistent link: https://EconPapers.repec.org/RePEc:rug:rugwps:11/718

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