Insider Trading, Earnings Quality, and Market Valuation
| Autor: | Wang, Yung-Sheng, 王勇勝 |
|---|---|
| Rok vydání: | 2003 |
| Druh dokumentu: | 學位論文 ; thesis |
| Popis: | 91 This study follows Beneish and Vargus (2002) to investigate whether insider trading is informative about earnings quality and the pricing implications of accruals. Accounting earnings consists of the cash flow component and the accruals component. The cash flow component is straightforward and hard to be distorted, but the accruals component is easily manipulated by the management and not easily understood by users of financial statements. Prior researches demonstrated that insiders do earn abnormal returns by trading the stocks of their own companies. The empirical results suggest that insiders may have prior channel to private information. Therefore, the insiders may see through the underlying economic factors associated with the nature and persistence of the accrual component, and buy or sell stocks before the earnings performance in the next period comes to reality. So I propose the insider trading is informative ex ante about their firm’s earnings quality. Besides, this study examines whether the market misprices the persistence of accruals when insiders trading is taken into account. The samples selected in this study are the firm-year data of 516 companies traded on Taiwan Stock Exchange Corporation, including 2,851 firm-year observations. Data are collected from Taiwan Economic New Journal Database from 1990 to 2000. Following Sloan (1996) and Beneish and Vargus (2002), I use two-stage iterative generalized nonlinear least squares procedure to test whether insider trading is informative about earnings quality, and compare the earnings forecasting coefficients with the market valuation coefficients to examine whether the market mispricing phenomenon exists. The empirical results suggest the following. First, when there is abnormal insider buying, the income-increasing accruals are more persistent and income-decreasing accruals are less persistent. This means that the abnormal insider buying is informative. Second, abnormal insider selling is not informative about earnings quality. As Lakonishok and Lee (2001) mentioned, this might be because the insiders sell for variety of purposes. At the last, the market does not significantly misprice the accruals when insider trading is taken into consideration. The possible explanation is that investors could use information of insider trading to forecast future earnings performance, but the market underestimates the earnings persistence of cash flow from operation. |
| Databáze: | Networked Digital Library of Theses & Dissertations |
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