Motivations for Insider Trading Following Fair Disclosures

Lee, Jung Youp; Kim, Moon Chul; Cheon, Young Soon

Korean Journal of Financial Studies 2013;42(2):461-492.
Published online April 30, 2013.

Jung Youp Lee, Moon Chul Kim, Young Soon Cheon

공정공시와 관련된 내부자거래의 동기에 관한 연구

이정엽, 김문철, 전영순

Abstract

This paper investigates two competing hypotheses as an explanation for the motives for insider trading following Fair Disclosures (FD)-personal profit hypothesis and signaling hypothesis. The results reveal that insiders tend to sell their company stocks after good news FD and buy their company stocks after bad news FD. Post-FD insider selling is positively associated with market reactions to FD, and post-FD insider buying is negatively related to the market reactions to FD. Also, the magnitude of post-FD insider selling increases alongside the magnitude of the positive market reactions to FD. The positive relationship between post-FD insider selling (buying) and positive (negative) market reactions to FD is more salient for insiders who are the top management of the firm. We also find that post-FD insider trading is not affected by the type of FD. Neither qualitative FD nor forward-looking FD alters patterns of post-FD insider trading.

Key Words: 공정공시,내부자거래,내부정보신호가설,사적이익동기가설,정보비대칭,Fair Disclosure,Information Asymmetry,Insider Trading,Personal Profit Hypothesis,Signaling Hypothesis