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Financial intermediaries such as analysts play an important role in providing information to investors. However, a large segment of the market (e.g. small firms) is not served by financial analysts, thus leaving investors, especially small investors, in a poor information environment. In this paper, we examine whether other publicly available information signals such as insider trades, institutional holdings, and firms’ stock repurchase decisions can be used to predict information about earnings for these firms. We find that CFOs’ trading decisions are associated with new information contained in the annual earnings reports for firms with no or scant analyst coverage. In contrast, for firms with multiple analyst coverage, insider trading decisions are not predictive of new information in earnings reports. Our results suggest that some public information signals such as insider trades can be used to alleviate the poor information environment faced by investors. However, the market seems not to have fully priced the information contained in these signals. |
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