Insider trading, accrual abuse, and corporate governance in emerging markets — Evidence from Taiwan

Hui-wen Tang, Anlin Chen and Chong-Chuo Chang

Pacific-Basin Finance Journal, 2013, vol. 24, issue C, 132-155

Abstract: This study investigates the endogenous relationship between abnormal insider trading and accrual abuse, and explores whether corporate governance affects this relationship. Our results suggest that insiders take advantage of private information on abnormal accruals to time their trading and manipulate accruals opportunistically to mislead the stock market prior to their planned trading. More important, we find that the abuse of inside information for stock trading becomes more serious when a firm's ultimate controller has a great divergence of control rights (or seat-control rights) from cash flow rights. We also find that higher family ownership and control, increased managerial ownership, or a dual leadership structure not only induces more private information trading prior to financial reports disclosure, but also intensifies accrual abuse for future trading. The results for composite governance indices are also consistent with our expectation. Taken together, our evidence suggests that a poor corporate governance system interacts with abnormal insider trading and abnormal accruals, thereby aggravating insider expropriation on outside investors.

Keywords: Abnormal accruals; Control rights; Corporate governance; Earnings management; Family control; Insider trading (search for similar items in EconPapers)
JEL-codes: G02 G12 G14 G32 G34 G38 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:24:y:2013:i:c:p:132-155

DOI: 10.1016/j.pacfin.2013.04.005

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