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Insider Filing Violations and Illegal Information Delay

Published online by Cambridge University Press:  09 September 2022

Brandon N. Cline Open the ORCID record for Brandon N. Cline [Opens in a new window]  and
Caleb Houston
Brandon N. Cline*
Affiliation:
Mississippi State University Department of Finance and Economics
Caleb Houston
Affiliation:
University of Alabama at Birmingham Department of Accounting and Finance houston0@uab.edu
*
Brandon.cline@msstate.edu (corresponding author)
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Abstract

We document that a significant number of insiders violate the Securities and Exchange Commission (SEC) reporting requirements by filing open market transactions after the legally required deadline. Prior to the Sarbanes–Oxley Act (SOX), 29% of transactions fell outside the required reporting window. Following SOX, 8% are delinquent. Violations cluster in periods of high information asymmetry, incentivizing insiders to keep trades private and earn abnormal returns. Collectively, these findings suggest that a subgroup of insiders personally benefit from violating SEC disclosure requirements. Evidence also suggests that blockholders provide governance for violations. Guilty insiders experience a reduction in board seats and an increased likelihood of turnover.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 58 , Issue 5 , August 2023 , pp. 2262 - 2297
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

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Footnotes

We received feedback and suggestions that strengthened this project from an anonymous referee, David Aboody, Anne Anderson, Suman Banerjee, André Betzer (the referee), Brian Blank, Lauren Cohen, Omri Even-Tov, Xudong Fu, Keith Gamble, Michael Highfield, Paul Malatesta (the editor), Micah Officer, Kenneth Roskelley, Alvaro Taboada, and Adam Yore. We also acknowledge and thank the seminar participants at the University of Missouri, the University of Alabama Birmingham, the University of Colorado Colorado Springs, Kent State University, Middle Tennessee State University, Mississippi State University, the University of Mississippi, and the University of Toledo. In addition, helpful comments were provided by the session chairs, discussants, and audience participants at the annual meetings of the 2018 Association of Private Enterprise Education (APPE), 2019 Eastern Finance Association, 2018 Financial Management Association, 2019 Financial Management Association European Conference, and the 2018 Southern Finance Association. All errors are our own.

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