Corporate Governance, Earning Quality and Information Asymmetry : Evidence from Insider Trading Around the Globe

We investigate the performance and its link with information asymmetry, corporate governance and legal enforcement of insider transactions in 36 countries covering 10 Asian countries, 20 European countries and 6 countries in the rest. The results show that abnormal returns after insider trading are generally positive over time especially on Monday (insider sales) and Friday (insider purchase) for both executive and non-executive directors. The insider trading performance is typically related to earnings management which is measured by accruals. Corporate insider trading is informative and can assist in the analysis of future prospect of the firm. The zero-investment portfolios based on insider trading and accruals offers positive returns in most of the countries. However, after adjusting market risk, the profit of insider trading portfolios remain only in a few countries. The regression analysis exhibit the importance of corporate governance to limit the insider profits