Insider Trading Incentives and Disclosure Quality: Evidence from China

Speaker: Zhang Huai

Venue: Room A423, School of Management, Zijingang Campus

Abstract: Exploiting the introduction of China’s 2018 Northbound Investor Identification System (NIIS) as an exogenous shock to insider trading incentives, we examine the impact of managerial insider trading incentives on firms’ disclosure quality. We find that when managers have lower incentives to engage in insider trading, they provide higher-quality disclosures, evidenced by more precise and accurate management earnings forecasts. The effect is more pronounced for firms with high exposure to regulatory changes, low litigation risk, poor corporate governance, and opaque information environment. Our study highlights the role of insider trading incentives in shaping corporate disclosure.