Accounting Conservatism and the Profitability of Corporate Insiders Articles uri icon

publication date

  • January 2020

start page

  • 1

end page

  • 49

International Standard Serial Number (ISSN)

  • 0306-686X

Electronic International Standard Serial Number (EISSN)

  • 1468-5957

abstract

  • We predict that accounting conservatism influences insiders' opportunities to speculate on good and bad news, and thus, insider trading profitability. We find that greater conditional (unconditional) conservatism is associated with lower (higher) insiders' profitability from sales. We find limited evidence that conservatism influences profitability from purchases. These findings are consistent with our hypotheses on the different informational roles ofconditional and unconditional conservatism, and on the asymmetric influence of conservatism over the opportunities to speculate on good versus bad news. Our research design takes intoconsideration the endogenous nature of insiders' trading and conservatism. The results are robust to different measures of conservatism and a number of additional analyses.