Date of this Version
Journal of Accounting and Economics
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.
© 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/.
disclosure, earnings guidance, insider trading, litigation risk, earnings disappointment, negative earnings news
Billings, M., & Cedergren, M. C. (2015). Strategic Silence, Insider Selling and Litigation Risk. Journal of Accounting and Economics, 59 (2-3), 119-142. http://dx.doi.org/10.1016/j.jacceco.2014.12.001
Date Posted: 27 November 2017
This document has been peer reviewed.