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Insider-trading, discretionary accruals and information asymmetry

Abu Chowdhury, Sabur Mollah, Omar Al Farooque

The British Accounting Review

Swansea University Author: Sabur Mollah

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DOI (Published version): 10.1016/j.bar.2017.08.005

Abstract

Using US data for the period from 2004 to 2012 and alternative discretionary accruals measures, we examine whether insiders manipulate earnings in an asymmetric information environment to profit from their informed trades, and whether the intervening information environment influences the relationsh...

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Published in: The British Accounting Review
ISSN: 08908389
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URI: https://cronfa.swan.ac.uk/Record/cronfa38262
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first_indexed 2018-01-23T19:47:41Z
last_indexed 2019-07-24T15:08:31Z
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spelling 2019-07-24T11:32:22.5824236 v2 38262 2018-01-23 Insider-trading, discretionary accruals and information asymmetry 7bf64278ced3687f26a4b5d73dd4696c Sabur Mollah Sabur Mollah true false 2018-01-23 BAF Using US data for the period from 2004 to 2012 and alternative discretionary accruals measures, we examine whether insiders manipulate earnings in an asymmetric information environment to profit from their informed trades, and whether the intervening information environment influences the relationship between earnings management and insider trading. We show that insider trading dominated by sell trades has a positive association with discretionary accruals. The incremental effect of information asymmetry as well as the interaction with insider trading is also prevalent in this relation, confirming the moderating effect of asymmetric information. Further, we show that the active involvement of some key insiders in high discretionary accruals is for personal benefit more in growth firms than in value firms. Our results also suggest that earnings management allows for insiders’ opportunistic, rather than routine, buy and sell trades. Our findings highlight that regulators should oversee and scrutinise both insider trading and earnings management to mitigate the risk of the opportunistic behaviour of insiders to avoid future corporate scandals.Keywords: insider trading, discretionary Journal Article The British Accounting Review 08908389 Insider trading, discretionary accruals, information asymmetry, major insiders, opportunistic and routine trading 0 0 0 0001-01-01 10.1016/j.bar.2017.08.005 COLLEGE NANME Accounting and Finance COLLEGE CODE BAF Swansea University 2019-07-24T11:32:22.5824236 2018-01-23T12:43:09.6402892 Faculty of Humanities and Social Sciences School of Management - Accounting and Finance Abu Chowdhury 1 Sabur Mollah 2 Omar Al Farooque 3 0038262-23012018124359.pdf AAM5.Chowdhury_Mollah_Farooque_BAR2017.pdf 2018-01-23T12:43:59.3900000 Output 1215354 application/pdf Accepted Manuscript true 2019-08-25T00:00:00.0000000 © 2017, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/ true eng
title Insider-trading, discretionary accruals and information asymmetry
spellingShingle Insider-trading, discretionary accruals and information asymmetry
Sabur Mollah
title_short Insider-trading, discretionary accruals and information asymmetry
title_full Insider-trading, discretionary accruals and information asymmetry
title_fullStr Insider-trading, discretionary accruals and information asymmetry
title_full_unstemmed Insider-trading, discretionary accruals and information asymmetry
title_sort Insider-trading, discretionary accruals and information asymmetry
author_id_str_mv 7bf64278ced3687f26a4b5d73dd4696c
author_id_fullname_str_mv 7bf64278ced3687f26a4b5d73dd4696c_***_Sabur Mollah
author Sabur Mollah
author2 Abu Chowdhury
Sabur Mollah
Omar Al Farooque
format Journal article
container_title The British Accounting Review
institution Swansea University
issn 08908389
doi_str_mv 10.1016/j.bar.2017.08.005
college_str Faculty of Humanities and Social Sciences
hierarchytype
hierarchy_top_id facultyofhumanitiesandsocialsciences
hierarchy_top_title Faculty of Humanities and Social Sciences
hierarchy_parent_id facultyofhumanitiesandsocialsciences
hierarchy_parent_title Faculty of Humanities and Social Sciences
department_str School of Management - Accounting and Finance{{{_:::_}}}Faculty of Humanities and Social Sciences{{{_:::_}}}School of Management - Accounting and Finance
document_store_str 1
active_str 0
description Using US data for the period from 2004 to 2012 and alternative discretionary accruals measures, we examine whether insiders manipulate earnings in an asymmetric information environment to profit from their informed trades, and whether the intervening information environment influences the relationship between earnings management and insider trading. We show that insider trading dominated by sell trades has a positive association with discretionary accruals. The incremental effect of information asymmetry as well as the interaction with insider trading is also prevalent in this relation, confirming the moderating effect of asymmetric information. Further, we show that the active involvement of some key insiders in high discretionary accruals is for personal benefit more in growth firms than in value firms. Our results also suggest that earnings management allows for insiders’ opportunistic, rather than routine, buy and sell trades. Our findings highlight that regulators should oversee and scrutinise both insider trading and earnings management to mitigate the risk of the opportunistic behaviour of insiders to avoid future corporate scandals.Keywords: insider trading, discretionary
published_date 0001-01-01T03:48:22Z
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score 11.035634

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