Economics at your fingertips  

Insider-trading, discretionary accruals and information asymmetry

Abu Chowdhury (), Sabur Mollah and Omar Al Farooque

The British Accounting Review, 2018, vol. 50, issue 4, 341-363

Abstract: Using US data for the period from 2004 to 2012 and alternative discretionary accruals measures, we examine whether insiders manipulate earnings in an asymmetric information environment to profit from their informed trades, and whether the intervening information environment influences the relationship between earnings management and insider trading. We show that insider trading dominated by sell trades has a positive association with discretionary accruals. The incremental effect of information asymmetry as well as the interaction with insider trading is also prevalent in this relation, confirming the moderating effect of asymmetric information. Further, we show that the active involvement of some key insiders in high discretionary accruals is for personal benefit more in growth firms than in value firms. Our results also suggest that earnings management allows for insiders’ opportunistic, rather than routine, buy and sell trades. Our findings highlight that regulators should oversee and scrutinise both insider trading and earnings management to mitigate the risk of the opportunistic behaviour of insiders to avoid future corporate scandals.

Keywords: Insider trading; Discretionary accruals; Information asymmetry; Major insiders; Opportunistic and routine trading (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

The British Accounting Review is currently edited by Nathan Lael Joseph and Alan Lowe

More articles in The British Accounting Review from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

Page updated 2019-09-27
Handle: RePEc:eee:bracre:v:50:y:2018:i:4:p:341-363