While executives at U.S. public companies must disclose trades in their company’s stock within two business days, the Securities and Exchange Commission (SEC) has exempted insiders at foreign firms listed on U.S. exchanges from those requirements. Instead, insiders at foreign-domiciled but U.S-listed firms report their trades on paper forms mail-filed with the SEC, evading market scrutiny that is well-understood to accompany American insiders’ transactions.Using a unique dataset based on digitized versions of thousands of paper filings over a five-year period, we study stock sales by officers and directors of foreign firms listed on U.S. exchanges. We show that insider sales at foreign firms are highly opportunistic—and far more so than those of their American counterparts. After insiders at Russia-domiciled, U.S.-listed firms sell shares, their stock prices decline, on average, by 26%; after insiders at China-domiciled firms trading on U.S. exchanges sell, their stock prices decline by 21%. And insiders at foreign-domiciled firms sell at scale: the average stock sale at the Chinese firms we study is worth more than $18 million. This aggressive selling prior to large stock-price declines allows insiders at foreign companies listed on U.S. exchanges to avoid considerable losses.Our findings raise the troubling prospect that insiders at foreign firms listed in the U.S. are shielded from the well-known market discipline that accompanies the timely disclosure of such trading required of their American counterparts. We argue that, if foreign firms are to be permitted to raise capital from American investors, their insiders’ trading should be subject to the same level of transparency as insiders at American companies
