IDEAS home Printed from https://ideas.repec.org/a/eee/corfin/v80y2023ics0929119923000688.html
   My bibliography  Save this article

Tone emphasis and insider trading

Author

Listed:
  • Cheng, Lin
  • Jin, Qinglu
  • Ma, Hui

Abstract

In this study, we examine whether emphasized tone in earnings releases systematically predict managers' insider trading activities in the post earnings releases periods and whether managers' choices of tone placement in earnings releases are motivated by opportunistic incentives. We find that, holding constant the net tone of the overall document, managers make more insider sales (purchases) immediately after earnings releases when positive (negative) tone is presented more prominently in the document. In addition, we document that the relation between tone emphasis and the observed insider trading activities is more (less) pronounced when insiders have greater information advantage or when a firm's overall information environment is more opaque (when a firm has better corporate governance). Overall, our findings suggest that managers use narrative characteristics strategically to facilitate their insider trading and achieve personal gains.

Suggested Citation

  • Cheng, Lin & Jin, Qinglu & Ma, Hui, 2023. "Tone emphasis and insider trading," Journal of Corporate Finance, Elsevier, vol. 80(C).
    • Handle: RePEc:eee:corfin:v:80:y:2023:i:c:s0929119923000688
    DOI: 10.1016/j.jcorpfin.2023.102419
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0929119923000688
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jcorpfin.2023.102419?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Dai, Lili & Fu, Renhui & Kang, Jun-Koo & Lee, Inmoo, 2016. "Corporate governance and the profitability of insider trading," Journal of Corporate Finance, Elsevier, vol. 40(C), pages 235-253.
    2. Utpal Bhattacharya & Hazem Daouk, 2002. "The World Price of Insider Trading," Journal of Finance, American Finance Association, vol. 57(1), pages 75-108, February.
    3. Kraft, Anastasia & Lee, Bong Soo & Lopatta, Kerstin, 2014. "Management earnings forecasts, insider trading, and information asymmetry," Journal of Corporate Finance, Elsevier, vol. 26(C), pages 96-123.
    4. Yermack, David, 1997. "Good Timing: CEO Stock Option Awards and Company News Announcements," Journal of Finance, American Finance Association, vol. 52(2), pages 449-476, June.
    5. Huddart, Steven & Ke, Bin & Shi, Charles, 2007. "Jeopardy, non-public information, and insider trading around SEC 10-K and 10-Q filings," Journal of Accounting and Economics, Elsevier, vol. 43(1), pages 3-36, March.
    6. Ke, Bin & Huddart, Steven & Petroni, Kathy, 2003. "What insiders know about future earnings and how they use it: Evidence from insider trades," Journal of Accounting and Economics, Elsevier, vol. 35(3), pages 315-346, August.
    7. Baiman, S & Verrecchia, RE, 1996. "The relation among capital markets, financial disclosure, production efficiency, and insider trading," Journal of Accounting Research, Wiley Blackwell, vol. 34(1), pages 1-22.
    8. Hutton, Amy P. & Marcus, Alan J. & Tehranian, Hassan, 2009. "Opaque financial reports, R2, and crash risk," Journal of Financial Economics, Elsevier, vol. 94(1), pages 67-86, October.
    9. Keith L. Jones & Gopal V. Krishnan & Kevin D. Melendrez, 2008. "Do Models of Discretionary Accruals Detect Actual Cases of Fraudulent and Restated Earnings? An Empirical Analysis," Contemporary Accounting Research, John Wiley & Sons, vol. 25(2), pages 499-531, June.
    10. Billings, Mary Brooke & Cedergren, Matthew C., 2015. "Strategic silence, insider selling and litigation risk," Journal of Accounting and Economics, Elsevier, vol. 59(2), pages 119-142.
    11. Paul Brockman & James E. Cicon & Xu Li & S. McKay Price, 2017. "Words versus Deeds: Evidence from Post-Call Manager Trades," Financial Management, Financial Management Association International, vol. 46(4), pages 965-994, December.
    12. Seyhun, H. Nejat, 1986. "Insiders' profits, costs of trading, and market efficiency," Journal of Financial Economics, Elsevier, vol. 16(2), pages 189-212, June.
    13. Kristian D. Allee & Matthew D. Deangelis, 2015. "The Structure of Voluntary Disclosure Narratives: Evidence from Tone Dispersion," Journal of Accounting Research, Wiley Blackwell, vol. 53(2), pages 241-274, May.
    14. Lauren Cohen & Andrea Frazzini, 2008. "Economic Links and Predictable Returns," Journal of Finance, American Finance Association, vol. 63(4), pages 1977-2011, August.
    15. Alldredge, Dallin M. & Cicero, David C., 2015. "Attentive insider trading," Journal of Financial Economics, Elsevier, vol. 115(1), pages 84-101.
    16. Noe, Christopher F., 1999. "Voluntary disclosures and insider transactions," Journal of Accounting and Economics, Elsevier, vol. 27(3), pages 305-326, July.
    17. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    18. Lucian A. Bebchuk & Yaniv Grinstein & Urs Peyer, 2010. "Lucky CEOs and Lucky Directors," Journal of Finance, American Finance Association, vol. 65(6), pages 2363-2401, December.
    19. Alex Edmans & Luis Goncalves-Pinto & Moqi Groen-Xu & Yanbo Wang, 2018. "Strategic News Releases in Equity Vesting Months," The Review of Financial Studies, Society for Financial Studies, vol. 31(11), pages 4099-4141.
    20. Eli Amir & Shai Levi & Tsafrir Livne, 2018. "Do firms underreport information on cyber-attacks? Evidence from capital markets," Review of Accounting Studies, Springer, vol. 23(3), pages 1177-1206, September.
    21. Rozeff, Michael S & Zaman, Mir A, 1988. "Market Efficiency and Insider Trading: New Evidence," The Journal of Business, University of Chicago Press, vol. 61(1), pages 25-44, January.
    22. Daines, Robert M. & McQueen, Grant R. & Schonlau, Robert J., 2018. "Right on Schedule: CEO Option Grants and Opportunism," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 53(3), pages 1025-1058, June.
    23. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    24. David Aboody & Baruch Lev, 2000. "Information Asymmetry, R&D, and Insider Gains," Journal of Finance, American Finance Association, vol. 55(6), pages 2747-2766, December.
    25. Lang, Mark & Stice-Lawrence, Lorien, 2015. "Textual analysis and international financial reporting: Large sample evidence," Journal of Accounting and Economics, Elsevier, vol. 60(2), pages 110-135.
    26. Angela K. Davis & Jeremy M. Piger & Lisa M. Sedor, 2012. "Beyond the Numbers: Measuring the Information Content of Earnings Press Release Language," Contemporary Accounting Research, John Wiley & Sons, vol. 29(3), pages 845-868, September.
    27. Qiang Cheng & Kin Lo, 2006. "Insider Trading and Voluntary Disclosures," Journal of Accounting Research, Wiley Blackwell, vol. 44(5), pages 815-848, December.
    28. Ali, Usman & Hirshleifer, David, 2017. "Opportunism as a firm and managerial trait: Predicting insider trading profits and misconduct," Journal of Financial Economics, Elsevier, vol. 126(3), pages 490-515.
    29. Bhushan, Ravi, 1989. "Firm characteristics and analyst following," Journal of Accounting and Economics, Elsevier, vol. 11(2-3), pages 255-274, July.
    30. Tim Loughran & Bill Mcdonald, 2011. "When Is a Liability Not a Liability? Textual Analysis, Dictionaries, and 10‐Ks," Journal of Finance, American Finance Association, vol. 66(1), pages 35-65, February.
    31. Steven J. Huddart & Bin Ke, 2007. "Information Asymmetry and Cross†sectional Variation in Insider Trading," Contemporary Accounting Research, John Wiley & Sons, vol. 24(1), pages 195-232, March.
    32. Li, Feng, 2008. "Annual report readability, current earnings, and earnings persistence," Journal of Accounting and Economics, Elsevier, vol. 45(2-3), pages 221-247, August.
    33. Tama-Sweet, Isho, 2014. "Changes in earnings announcement tone and insider sales," Advances in accounting, Elsevier, vol. 30(2), pages 276-282.
    34. Bozanic, Zahn & Roulstone, Darren T. & Van Buskirk, Andrew, 2018. "Management earnings forecasts and other forward-looking statements," Journal of Accounting and Economics, Elsevier, vol. 65(1), pages 1-20.
    35. Lakonishok, Josef & Lee, Inmoo, 2001. "Are Insider Trades Informative?," The Review of Financial Studies, Society for Financial Studies, vol. 14(1), pages 79-111.
    36. Lauren Cohen & Christopher Malloy & Lukasz Pomorski, 2012. "Decoding Inside Information," Journal of Finance, American Finance Association, vol. 67(3), pages 1009-1043, June.
    37. Leslie A. Jeng & Andrew Metrick & Richard Zeckhauser, 2003. "Estimating the Returns to Insider Trading: A Performance-Evaluation Perspective," The Review of Economics and Statistics, MIT Press, vol. 85(2), pages 453-471, May.
    38. Messod D. Beneish & Eric Press & Mark E. Vargus, 2012. "Insider Trading and Earnings Management in Distressed Firms," Contemporary Accounting Research, John Wiley & Sons, vol. 29(1), pages 191-220, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zhang, Shengpeng & Li, Yaokuang & He, Yu & Liang, Ruixin, 2024. "Do vocal cues matter in information disclosure? Evidence from IPO online roadshows in the SSE STAR market," International Review of Financial Analysis, Elsevier, vol. 93(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rahman, Dewan & Kabir, Muhammad & Oliver, Barry, 2021. "Does exposure to product market competition influence insider trading profitability?," Journal of Corporate Finance, Elsevier, vol. 66(C).
    2. Guanming He & Helen Mengbing Ren & Richard Taffler, 2021. "Do corporate insiders trade on future stock price crash risk?," Review of Quantitative Finance and Accounting, Springer, vol. 56(4), pages 1561-1591, May.
    3. Huang, Wan & Bai, Yufan & Luo, Hong, 2024. "Customer identity concealing and insider selling profitability: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 85(C).
    4. Contreras, Harold & Marcet, Francisco, 2021. "Sell-side analyst heterogeneity and insider trading," Journal of Corporate Finance, Elsevier, vol. 66(C).
    5. Drobetz, Wolfgang & Mussbach, Emil & Westheide, Christian, 2020. "Corporate insider trading and return skewness," Journal of Corporate Finance, Elsevier, vol. 60(C).
    6. Kallunki, Jenni & Kallunki, Juha-Pekka & Nilsson, Henrik & Puhakka, Mikko, 2018. "Do an insider's wealth and income matter in the decision to engage in insider trading?," Journal of Financial Economics, Elsevier, vol. 130(1), pages 135-165.
    7. Sung Gon Chung & Beng Wee Goh & Jimmy Lee & Terry Shevlin, 2019. "Corporate Tax Aggressiveness and Insider Trading," Contemporary Accounting Research, John Wiley & Sons, vol. 36(1), pages 230-258, March.
    8. Akram Khalilov & Beatriz Garcia Osma, 2020. "Accounting conservatism and the profitability of corporate insiders," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 47(3-4), pages 333-364, March.
    9. Biggerstaff, Lee & Cicero, David & Wintoki, M. Babajide, 2020. "Insider trading patterns," Journal of Corporate Finance, Elsevier, vol. 64(C).
    10. Neupane, Biwesh & Thapa, Chandra & Marshall, Andrew & Neupane, Suman, 2021. "Mimicking insider trades," Journal of Corporate Finance, Elsevier, vol. 68(C).
    11. Contreras, Harold & Korczak, Adriana & Korczak, Piotr, 2023. "Religion and insider trading profits," Journal of Banking & Finance, Elsevier, vol. 149(C).
    12. Rahman, Dewan & Oliver, Barry & Faff, Robert, 2020. "Evidence of strategic information uncertainty around opportunistic insider purchases," Journal of Banking & Finance, Elsevier, vol. 117(C).
    13. Rahman, Dewan & Malik, Ihtisham & Ali, Searat & Iqbal, Jamshed, 2021. "Do co-opted boards increase insider profitability?," Journal of Contemporary Accounting and Economics, Elsevier, vol. 17(3).
    14. Skaife, Hollis A. & Veenman, David & Wangerin, Daniel, 2013. "Internal control over financial reporting and managerial rent extraction: Evidence from the profitability of insider trading," Journal of Accounting and Economics, Elsevier, vol. 55(1), pages 91-110.
    15. Tian, Yonggang & Ang, James S. & Fu, Panpan & Ma, Chaoqun & Wang, Xiuhua, 2024. "Does social trust mitigate insiders' opportunistic behaviors? Evidence from insider trading," Global Finance Journal, Elsevier, vol. 59(C).
    16. Steven J. Huddart & Bin Ke, 2007. "Information Asymmetry and Cross†sectional Variation in Insider Trading," Contemporary Accounting Research, John Wiley & Sons, vol. 24(1), pages 195-232, March.
    17. Clacher, Iain & Garcia Osma, Beatriz & Scarlat, Elvira & Shields, Karin, 2021. "Do commonalities facilitate private information channels? Evidence from common gender and insider trading," Journal of Corporate Finance, Elsevier, vol. 70(C).
    18. Li, Xiao, 2020. "The impact of economic policy uncertainty on insider trades: A cross-country analysis," Journal of Business Research, Elsevier, vol. 119(C), pages 41-57.
    19. Li, Tao & Ji, Yu, 2021. "Institutional ownership and insider trading profitability: Evidence from an emerging market," Pacific-Basin Finance Journal, Elsevier, vol. 70(C).
    20. Pham, Mia Hang, 2020. "In law we trust: Lawyer CEOs and stock liquidity," Journal of Financial Markets, Elsevier, vol. 50(C).

    More about this item

    Keywords

    Tone emphasis; Narrative characteristics; Strategic disclosure; Insider trading; Earnings releases;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:corfin:v:80:y:2023:i:c:s0929119923000688. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jcorpfin .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.