We thank Mark Griffiths (associate editor), Brian Smith (referee), Helen Choy, and Nick Gonedes for their valuable comments, suggestions and insights.
THE MARKET RESPONSE TO INSIDER SALES OF RESTRICTED STOCK VERSUS UNRESTRICTED STOCK
Article first published online: 13 MAR 2014
© 2014 The Southern Finance Association and the Southwestern Finance Association
Journal of Financial Research
Volume 37, Issue 1, pages 99–118, Spring 2014
How to Cite
Franzen, L., Li, X., Urcan, O. and Vargus, M. E. (2014), THE MARKET RESPONSE TO INSIDER SALES OF RESTRICTED STOCK VERSUS UNRESTRICTED STOCK. Journal of Financial Research, 37: 99–118. doi: 10.1111/jfir.12030
- Issue published online: 13 MAR 2014
- Article first published online: 13 MAR 2014
Insiders holding both restricted and unrestricted stock must decide which type of equity to trade. We investigate the relation between this choice and the market response to insider sales. If insiders choose restricted stock, the sale must be preannounced, but if they choose unrestricted stock, the sale is disclosed after the sale occurs. Preannounced trades are less likely to reflect informed trades. Consistent with this, in the pre-Sarbanes–Oxley (SOX) period, we find a more negative market response to unrestricted stock sales than preannounced restricted stock sales. The result does not hold for our post-SOX period when reporting times were accelerated. Our results suggest researchers who examine data over the pre-SOX period should consider the effect of restricted stock sales in tests of informed insider trading.