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SUMMARY:DO PROPRIETARY COSTS DETER INSIDER TRADING? - Stephen Hillegeist\,
  W.P. Carey School of Business at Arizona State University\, USA
DTSTART:20181108T143000Z
DTEND:20181108T163000Z
UID:TALK114382@talks.cam.ac.uk
CONTACT:Emily Brown
DESCRIPTION:Co-written with Lyungmae Choi (City University of Hong Kong) a
 nd Lucile Faurel (Arizona State University).\n\nStock markets infer inside
 rs’ private information from their trades as prices react to insider tra
 de disclosures. In a similar fashion\, we expect insider trading potential
 ly reveals proprietary information to the firm’s rivals\, which allows t
 hem to compete more effectively against the firm.\n\nUsing a variety of ap
 proaches to identify proprietary information risk\, we find proprietary co
 sts are negatively associated with insiders’ trading activities. The ass
 ociation is stronger when insider trading is more likely to be more inform
 ative to rivals\; that is\, when trades are made by top executives and bef
 ore new product launches\, when trades are made by insiders at low complex
 ity firms\, and at smaller firms.\n\nWe posit concerns about proprietary i
 nformation risk increase the costs associated with insider trades\, and he
 nce\, increase the required benefits before insiders are willing to trade.
  Consistent with this conjecture\, we find that when insiders trade in the
  face of higher proprietary costs\, they earn significantly higher profits
 . Examining the underlying mechanisms\, we find firms with higher propriet
 ary costs are more likely to impose and/or more strictly enforce existing 
 insider trading restrictions\, and insiders’ trading decisions are more 
 sensitive to proprietary costs when they have higher ownership of the comp
 any.\n\nOverall\, our results indicate insiders and firms are aware of the
  potential proprietary costs that occur when they trade on private informa
 tion\, and they alter their trading activities accordingly.\n
LOCATION:Lecture Theatre 3\, Cambridge Judge Business School
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