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Insider Trading and Earnings Management
Author(s) -
Sawicki Julia,
Shrestha Keshab
Publication year - 2008
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.2008.02075.x
Subject(s) - earnings , valuation (finance) , earnings management , insider , accrual , insider trading , value (mathematics) , marginal value , business , market value , economics , monetary economics , financial economics , accounting , finance , microeconomics , machine learning , computer science , law , political science
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.