Abstract

This study investigates whether insiders opportunistically choose disclosure policy before insidertrading. If managers plan to sell (buy) shares in the future, they have incentives to increase thenumber of good (bad) news so that they can subsequently sell (buy) at higher (lower) price. Using insider trading data from 2003 to 2009, we find the following results. First, the numberof good news decreases significantly before insider buying transactions, and increases beforeinsider selling transactions. These results suggest that managers exploit voluntary disclosuresopportunistically in order to maximize trading profits. Second, the positive relation between thenumber of good news and insider selling transactions is mainly attributed to qualitativedisclosures. This finding suggests that managers exploit qualitative disclosure to avoid litigationrisk and reputation loss. Lastly, the association between voluntary disclosure frequency and insidertrading is stronger in KOSDAQ firms than in KOSPI firms. This result implies managers’opportunistic disclosure strategy is more salient in KOSDAQ firms with high informationasymmetry. Prior research documents that insiders time their trades strategically after voluntary disclosures. In contrast, this study considers voluntary disclosures as a strategic choice variable that allowsmanagers to trade at more favorable prices. Our results provide useful implications for regulatorsand market participants with respect to interpretations of voluntary disclosures in the presence offrequent insider trading.

Keywords

• insider trading
• voluntary disclosures
• quantitative disclosures
• qualitative disclosures
• information asymmetry

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