Strategic silence, insider selling and litigation risk

Mary Brooke Billings and Matthew C. Cedergren

Journal of Accounting and Economics, 2015, vol. 59, issue 2, 119-142

Abstract: Prior work finds that managers beneficially time their purchases, but not sales, prior to forecasts. Focusing on if (as opposed to when) a forecast is given, we link insider selling to silence in advance of earnings disappointments. This raises the question of whether the absence of incriminating trading drives reductions in litigation risk potentially attributed to warnings. We find that the absence of a warning combined with the presence of selling exacerbates the consequences associated with the individual behaviors. Yet, selling prior to a warning typically does not offset all of the warning׳s benefit. In so doing, we supply the first robust evidence of a litigation benefit associated with warning.

Keywords: Disclosure; Earnings guidance; Insider trading; Litigation risk; Earnings disappointment; Negative earnings news (search for similar items in EconPapers)
JEL-codes: G14 K22 M41 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (43)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:59:y:2015:i:2:p:119-142

DOI: 10.1016/j.jacceco.2014.12.001

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