Abstract

This paper investigates whether insider trading is informative about earnings persistence and also future performance proxied by the firm's future return and earnings. Using the sample of insider trading over the period 1994-2002, I evaluate whether a signal based on insider trading predicts the one-year-ahead earnings persistence. The earnings persistence tests reveal that insider trading provides little indication of the persistence of accruals. On the other hand, I find that insider trades are positively associated with the firm's future return and earnings performance. The relation is shown to be incremental to the book-to-market and market value relations.

Keywords

• insider trading
• private information
• earnings persistence

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