Insider Trading before Earnings News: The Role of Executive Pay Disparity

Ann-Ngoc Nguyen (), Viet Le, Andros Gregoriou and David Kernohan
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Ann-Ngoc Nguyen: Department of Accounting, Finance, and Economics, Middlesex Business School, Middlesex University, The Burroughs, Hendon, London NW4 4BT, UK
Viet Le: School of Economics, Finance, and Accounting, Coventry University, Coventry CV1 5DD, UK
Andros Gregoriou: Liverpool Business School, Liverpool John Moores University, Brownlow Hill, Liverpool L3 5UG, UK
David Kernohan: Department of Accounting, Finance, and Economics, Middlesex Business School, Middlesex University, The Burroughs, Hendon, London NW4 4BT, UK

JRFM, 2024, vol. 17, issue 10, 1-36

Abstract: We investigate how executive pay disparity affects insider profits around earnings news. Our findings reveal that high pay disparity is linked to higher abnormal returns from insider purchases before positive news, suggesting insiders exploit good news for greater gains. Conversely, it is associated with lower abnormal returns from insider sales before negative news, indicating less benefit from such sales. These insights highlight the influence of pay disparity on insider trading and underscore the importance of understanding this dynamic to improve decision-making and reduce misuse of insider information.

Keywords: insider gains; CEO pay gap; CEO pay slice; earnings disclosure; good news; bad news (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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