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.
Insider Trading and Earnings Management
Article first published online: 6 MAR 2008
© 2008 The Authors Journal compilation © 2008 Blackwell Publishing Ltd
Journal of Business Finance & Accounting
Volume 35, Issue 3-4, pages 331–346, April/May 2008
How to Cite
Sawicki, J. and Shrestha, K. (2008), Insider Trading and Earnings Management. Journal of Business Finance & Accounting, 35: 331–346. doi: 10.1111/j.1468-5957.2008.02075.x
- Issue published online: 6 MAR 2008
- Article first published online: 6 MAR 2008
- (Paper received January 2006, revised version accepted August 2007)
- insider trading;
- earnings management;
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.