Do corporate insiders trade on future stock price crash risk?

Guanming He, Helen Mengbing Ren and Richard Taffler
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Helen Mengbing Ren: University of Liverpool Management School, University of Liverpool
Richard Taffler: University of Warwick

Review of Quantitative Finance and Accounting, 2021, vol. 56, issue 4, No 12, 1591 pages

Abstract: Abstract We explore whether firm managers trade on future stock price crash risk. This depends on managers’ ability to assess future crash risk, and on whether the expected payoff is greater than the expected costs associated with potential reputation loss and litigation risk. We find that insider sales are positively associated with future crash risk, which is consistent with managers’ trading on crash risk for personal gain. We also find that managers take advantage of high information opacity to pursue crash-risk-based insider sales more aggressively, but are less able to capitalize on this in the case of financial constraints or post-SOX.

Keywords: Insider selling; Managerial opportunism; Financial constraints; Information asymmetry; SOX (search for similar items in EconPapers)
JEL-codes: G14 G30 M41 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (9)

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DOI: 10.1007/s11156-020-00936-3

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