SEC comment letters and insider sales
Journal
Accounting Review
Subject
Accounting
Publishing details
Authors / Editors
Dechow P M;Lawrence A;Ryans J
Biographies
Publication Year
2016
Abstract
We document that insider trading is significantly higher than normal levels prior to the public disclosure of SEC comment letters relating to revenue recognition. Furthermore, insider trading is triple its normal level for firms with high short positions. We find a small negative return at the comment letter release date and a negative drift in returns of 1 to 5 percent over the next 50 days following the release. We also find that greater pre-disclosure sales are associated with a stronger negative drift. This evidence suggests that insiders appear to benefit from trading prior to revenue recognition comment letters. We investigate whether the delayed price reaction to comment letter releases is due to investor inattention. Consistent with this explanation, we document that comment letters are downloaded infrequently from EDGAR in the days following their public disclosure.
Keywords
Insider trading; revenue recognition; investor inattention; financial disclosure; short sellers
Available on ECCH
No
