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Rounding of earnings per share and managerial insider selling

Author

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  • Robert Kim
  • Yong Gyu Lee
  • Gerald J. Lobo

Abstract

We hypothesize that managers anticipate a disproportionately larger price increase associated with rounded earnings per share (EPS) and make additional effort to round EPS when they plan to sell shares after the earnings announcement. Consistent with this hypothesis, we find that managers who round diluted EPS have higher managerial insider sales following the earnings announcement compared to managers who do not. Furthermore, we find that the positive association between rounding of diluted EPS and subsequent stock sales undertaken by chief financial officers (CFOs) is stronger when the level of abnormal stock repurchases is higher, consistent with managers’ strategic behavior.

Suggested Citation

  • Robert Kim & Yong Gyu Lee & Gerald J. Lobo, 2024. "Rounding of earnings per share and managerial insider selling," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 31(1), pages 96-129, January.
    • Handle: RePEc:taf:raaexx:v:31:y:2024:i:1:p:96-129
    DOI: 10.1080/16081625.2022.2147965
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