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Insider Trades and Private Information: The Special Case of Delayed-Disclosure Trades

Shijun Cheng, Venky Nagar and Madhav V. Rajan
The Review of Financial Studies
Vol. 20, No. 6 (Nov., 2007), pp. 1833-1864
Stable URL: http://www.jstor.org/stable/4494822
Page Count: 32
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Insider Trades and Private Information: The Special Case of Delayed-Disclosure Trades
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Abstract

In certain circumstances, insider trades such as private transactions between executives and their firms could be disclosed after the end of the firm's fiscal year, on a Form-5 filing. We find that insider sales disclosed in such a delayed manner for large firms are predictive of negative future returns (-6 to -8 percent), as well as lower future annual earnings relative to analyst forecasts. These results stand in contrast to existing findings on the uninformativeness of quickly disclosed open-market insider sales. The Sarbanes-Oxley Act curtailed the use of Form 5 under the presumption that managers used this vehicle opportunistically. Our systematic evidence supports this presumption.

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