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Insider Trading and Corporate Information Transparency

Authors

  • Feng Gu,

    Corresponding author
    1. State University of New York at Buffalo
      Department of Accounting & Law, Jacobs Management Center, State University of New York at Buffalo, Buffalo, NY 14260-4000; Phone: (716) 645-3273; Fax: (716) 645-3823; E-mail: fgu@buffalo.edu.
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  • John Q. Li

    1. Hunter College, City University of New York
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  • Research support from the State University of New York at Buffalo and Hunter College, City University of New York is greatly acknowledged. The authors thank Bonnie Van Ness (editor) and an anonymous reviewer for very helpful comments and suggestions.

Department of Accounting & Law, Jacobs Management Center, State University of New York at Buffalo, Buffalo, NY 14260-4000; Phone: (716) 645-3273; Fax: (716) 645-3823; E-mail: fgu@buffalo.edu.

Abstract

Our study examines the relation between insider trading and corporate information transparency. We find a negative relation between firms’ information transparency and the economic significance of insider trading, including the amount of insider purchase and sale and the profitability of insider transactions. We also find a negative relation between information transparency and stock price reaction to news of insider trading, which suggests that increases in information transparency preempt insiders’ private information. Our study provides evidence consistent with firms’ transparency-enhancing activities decreasing information asymmetry between insiders and investors by revealing insiders’ private information to investors in a timely manner.

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