Geographic connections to China and insider trading at the start of the COVID-19 pandemic

Erin Henry (), George A. Plesko () and Caleb Rawson ()
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Erin Henry: University of Arkansas
George A. Plesko: University of Connecticut
Caleb Rawson: University of Arkansas

Review of Accounting Studies, 2024, vol. 29, issue 1, No 10, 354-387

Abstract: Abstract The sudden and exogenous nature of the COVID-19 crash provides a unique identification opportunity to study insiders’ informational advantages. We find that the sales of insiders at firms with connections to China were significantly more profitable during the COVID-19 crisis than the sales of insiders at firms without connections to China. Consistent with greater attentiveness to public information about the COVID-19 pandemic, this result is driven by China connected insiders executing larger (smaller) sales in the early (late) COVID-19 period than non–China connected insiders. We find our results are driven by trades that are not preplanned under Rule 10b5–1 and are consistent with anticipation of the systematic market effects of COVID-19 on an insider’s firm as opposed to firm-specific effects. Aggregate China connected insider trades also predict market returns during the COVID-19 period. Our study contributes to the insider trading literature by introducing geographic connection to market-wide information as a source of public information advantage and to regulatory efforts to investigate and understand corporate insider behavior related to the COVID-19 pandemic.

Keywords: Insider trading; China operations; Pandemic; COVID-19 (search for similar items in EconPapers)
JEL-codes: D80 G01 G14 G30 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s11142-022-09715-y

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