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Strategic trading and trade reporting by corporate insiders

Betzer, André
Gider, Jasmin
Metzger, Daniel
Theissen, Erik
Year of Publication: 
Series/Report no.: 
CFR working paper 09-15
In the pre-Sarbanes-Oxley era corporate insiders were required to report trades in shares of their firm until the 10th of the month following the trade. This gave them considerable flexibility to time their trades and reports strategically, e.g., by executing a sequence of trades and reporting them jointly after the last trade. We document that the reporting requirements were apparently not enforced. More than 13% of the trades were reported too late. We further find clear evidence of strategic trading. Only 32.1% of the insider trades in our sample are classified as non-strategic. The probability of strategic trading depends on firm and trade characteristics and on the role of the insider in the firm. We perform an event study where the event date is the date of the report. We find that the CARs do not decrease in the length of the reporting delay. This implies that share prices are distorted by delayed reporting. Thus, delayed reporting is detrimental to market efficiency. Finally, we find that the event study CARs are larger after the report of strategic insider trades as compared to otherwise similar nonstrategic insider trades. Our results have important policy implications. In particular, they lend strong support to the more stringent trade reporting requirements established by the Sarbanes Oxley Act.
insider trading
directors' dealings
corporate governance
market efficiency
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Document Type: 
Working Paper

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