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Delayed disclosure of insider trades: Incentives for and indicators of future performance?

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  • Chang, Millicent
  • Watson, Iain

Abstract

We investigate incidences of delayed disclosure of trading by corporate insiders (directors) in Australian firms and link this activity to personal wealth incentives and f uture firm performance. Delayed disclosure represents discrepancies in timing between trades reported as they occur and trades as disclosed in the firm's annual report. Over the period from 2007 to 2011, the rate of late reported trading was about 6%, being at its lowest in 2010 at 5.3% and peaking at 6.8% in 2007. The rate of delayed disclosed purchases was higher than the rate of sales. The likelihood of delayed disclosure was affected by insider wealth factors such as total compensation levels, equity compensation, and shareholdings and their positions within the firm. When executive and nonexecutive directors in small firms delayed the reporting of their purchases, these purchases signaled positive future returns. In large firms, only executive directors' sales were indicative of one year ahead negative returns. These findings suggest that delayed disclosed trades have information content about future firm performance and compensation structures influence the decisions by some insiders to engage in such activity for personal gain.

Suggested Citation

  • Chang, Millicent & Watson, Iain, 2015. "Delayed disclosure of insider trades: Incentives for and indicators of future performance?," Pacific-Basin Finance Journal, Elsevier, vol. 35(PA), pages 182-197.
    • Handle: RePEc:eee:pacfin:v:35:y:2015:i:pa:p:182-197
    DOI: 10.1016/j.pacfin.2014.12.007
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    Cited by:

    1. Huang, Hung-Yi & Yan, Cheng & Ho, Kung-Cheng, 2022. "Does managerial compensation influence price efficiency?," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).
    2. Dawood Ashraf & Mohsin Khawaja & M. Ishaq Bhatti, 2022. "Raising capital amid economic policy uncertainty: an empirical investigation," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-32, December.
    3. Balachandran, Balasingham & Faff, Robert, 2015. "Corporate governance, firm value and risk: Past, present, and future," Pacific-Basin Finance Journal, Elsevier, vol. 35(PA), pages 1-12.
    4. Foley, Sean & Kwan, Amy & McInish, Thomas H. & Philip, Richard, 2016. "Director discretion and insider trading profitability," Pacific-Basin Finance Journal, Elsevier, vol. 39(C), pages 28-43.
    5. Katselas, Dean, 2018. "Insider trading in Australia: Contrarianism and future performance," Pacific-Basin Finance Journal, Elsevier, vol. 48(C), pages 112-128.
    6. Foley, Sean & Kwan, Amy & McInish, Thomas H. & Philip, Richard, 2017. "Reprint of Director discretion and insider trading profitability," Pacific-Basin Finance Journal, Elsevier, vol. 45(C), pages 52-67.
    7. Millicent Chang & Xiaolin Qian & Jing Yu & Yvonne See, 2017. "Does director trading change the information environment?," Australian Journal of Management, Australian School of Business, vol. 42(2), pages 205-229, May.
    8. Millicent Chang & Andrew B. Jackson & Marvin Wee, 2018. "A review of research on regulation changes in the Asia‐Pacific region," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(3), pages 635-667, September.

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    More about this item

    Keywords

    Insider trading; Delayed disclosure; Future returns;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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