Insider trading as a vehicle to appropriate rent from R&D

Deskripsi

While most insider trading is routine and legal, investors still treat it as new information about the firm's prospects - they assume that trades reflect managers' attempts to profit from their private information. This article explores insider trading as a mechanism to appropriate rent from R&D advances. Stock price reactions to over 134,000 insider-trading events were analyzed and it was found that insider purchases generate larger positive stock price reactions from R&D-intensive firms. Investors seem to assume that managers use insider trading to appropriate rent from R&D breakthroughs. This paper discusses how shareholders may prefer this rent appropriation mechanism over other forms of compensation that directly reduce the firm's income..Printed Journal