Insider Trading and Earnings Management

Authors

  • Julia Sawicki,

    1. The authors are respectively from the School of Business Administration, Al Akhawayn University, Morocco, and the Nanyang Business School, Nanyang Technological University, Singapore.
    Search for more papers by this author
  • Keshab Shrestha

    Corresponding author
    1. The authors are respectively from the School of Business Administration, Al Akhawayn University, Morocco, and the Nanyang Business School, Nanyang Technological University, Singapore.
    Search for more papers by this author

  • They gratefully acknowledge comments from: an anonymous referee which were very important to revising the original version, Rashad Abdel-Khalik and Hwang Chuan-Yang. Thank you to EM Leong, CH Lim and TS Chao for research assistance.

* Address for correspondence: Julia Sawicki, Al Akhawayn University, Ifrane 53000, Morocco. e-mail: j.sawicki@aui.ma

Abstract

Abstract:  This paper analyzes the relationship between earnings management and insider trading, specifically investigating whether discretionary accruals are related to insider trading and valuation. We find strong evidence of insiders managing earnings downward when buying and managing earnings upward when selling. On the marginal basis, value (high book-to-market value) firms manage their earnings upward compared to growth (low book-to-market value) firms, consistent with a signaling hypothesis. However, the opposite is true on the average basis, consistent with an opportunistic hypothesis.

Ancillary