Management Earnings Forecasts, Insider Trading, and Information Asymmetry

We investigate whether senior officers use accrual-based earnings management to meet voluntary earnings disclosure (i.e., management earnings forecasts) before selling or buying their own shares when they have private information. This study is the first to use the differences in timing of trades by senior officers and other insiders (e.g., directors or large shareholders) to infer information asymmetry. We hypothesize that the timing of senior officers' trades with no other insiders' trades at the same time indicates opportunistic trades and asymmetric information between senior officers and other insiders. Our results show that senior officers' exclusive sales are negatively associated with future returns, indicating that they tend to use insider information. Moreover, senior officers are more likely to meet their earnings forecasts when they plan to sell stocks