Accounting Papers

Document Type

Journal Article

Date of this Version

4-2015

Publication Source

Journal of Accounting and Economics

Volume

59

Issue

2-3

Start Page

119

Last Page

142

DOI

10.1016/j.jacceco.2014.12.001

Abstract

Prior work finds that managers beneficially time their purchases, but not sales, prior to forecasts. Focusing on if (as opposed to when) a forecast is given, we link insider selling to silence in advance of earnings disappointments. This raises the question of whether the absence of incriminating trading drives reductions in litigation risk potentially attributed to warnings. We find that the absence of a warning combined with the presence of selling exacerbates the consequences associated with the individual behaviors. Yet, selling prior to a warning typically does not offset all of the warning׳s benefit. In so doing, we supply the first robust evidence of a litigation benefit associated with warning.

Copyright/Permission Statement

© 2015. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/.

Comments

At the time of publication, author Matthew C. Cedergren was affiliated with New York University. Currently (October, 2014), he is a faculty member at the Accounting Department at the University of Pennsylvania.

Keywords

disclosure, earnings guidance, insider trading, litigation risk, earnings disappointment, negative earnings news

Embargo Date

1-2-2017

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Date Posted: 27 November 2017

This document has been peer reviewed.