Market reactions to insider trading prior to corporate earnings disclosure. Does executive pay disparity play any role?

Pre-print

Nguyen, A., Le, V., Kernohan, D. and Gregoriou, A. 2023. Market reactions to insider trading prior to corporate earnings disclosure. Does executive pay disparity play any role? https://doi.org/10.2139/ssrn.4445167
TypePre-print
TitleMarket reactions to insider trading prior to corporate earnings disclosure. Does executive pay disparity play any role?
AuthorsNguyen, A., Le, V., Kernohan, D. and Gregoriou, A.
Abstract

This paper investigates the impact of firms’ executive pay disparity on insider trading returns prior corporate earnings disclosures. We find evidence that executive pay disparity has a significant positive relationship with abnormal returns from insider purchases preceding the good earnings news disclosures, and insider returns are greater for firms with higher earnings surprises. This implies that insiders in high CEO pay gap firms tend to exploit good earnings news to increase the profit in their stock-buying transactions. In contrast, we find a negative relationship between executive pay disparity and abnormal returns of insider sales preceding the bad earnings news disclosures. This indicates that insiders in high CEO pay gap firms are less likely to profit from their stock sales. Our empirical research also provides further evidence to the literature that insider trading is a plausible signal for future earnings of the firms.

KeywordsInsider returns; executive pay disparity; earnings disclosure
Sustainable Development Goals10 Reduced inequalities
16 Peace, justice and strong institutions
Middlesex University ThemeSustainability
Preprint server/collectionThe Social Science Research Network (SSRN)
ISSN1556-5068
Publication dates
Online11 May 2023
Publication process dates
Deposited08 Oct 2024
Output statusPublished
First submitted version
File Access Level
Restricted
Digital Object Identifier (DOI)https://doi.org/10.2139/ssrn.4445167
Scopus EID2-s2.0-85159171593
Related Output
Is version ofInsider trading, executive pay disparity and CEO turnover
LanguageEnglish
Publisher's version
License
All rights reserved
File Access Level
Open
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