Insiders’ incentives of using a specific disclosure tone when trading

Paula Mirela Sandulescu

Abstract


This study investigates the relations between disclosure tone, insider trading and returns. Using a dictionary-based approach to quantify the disclosure tone contained in the Management Discussion and Analysis of 10-Q and 10-K filings, I find that the net disclosure tone predicts the insider purchase ratio (purchases scaled by the sum of purchases and sales), even after controlling for past purchases, return volatility and firm characteristics. Constructing a buy-and-hold portfolio over a six months horizon, I find that insiders earn approximately 5.8% abnormal return per year. Both disclosure tone and insider purchase ratio are able to predict the buy-and-hold abnormal return.

https://doi.org/10.1016/j.scoms.2015.03.009


Keywords


Disclosure tone; Insider trading; Buy-and-hold abnormal returns; Content analysis; Financial statements

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Copyright (c) 2015 Swiss Association of Communication and Media Research and Università della Svizzera italiana. Published by Elsevier GmbH. All rights reserved.



Studies in Communication Sciences | ISSN: 1424-4896