Insider Trading as a Compensation Mechanism

Abstract We find evidence that insiders at resource constrained firms trade more often and in patterns indicating the use of private information. Our findings are driven by insider sales relative to cash‐based compensation. This indicates that when compensation is not directly tied to firm value, insiders are more likely to trade opportunistically, even if their trade transmits a negative market signal. Insiders also realize significant abnormal returns following transactions at resource constrained firms, indicating that insiders are trading with private information and consistently profiting. Overall, these results suggest that insiders at resource constrained firms utilize insider trading to supplement their compensation.

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Publication Details

Journal
The Journal of Financial Research
Published
2025-09-26
DOI
https://doi.org/10.1111/jfir.70024
Primary Topic
Corporate Finance and Governance
Type
article
Field-Weighted Citation Impact
0.00
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article

Insider Trading as a Compensation Mechanism

Caleb Houston, Bart Jansen, J. Chen
The Journal of Financial Research
Corporate Finance and Governance
article

Insider Trading as a Compensation Mechanism

Caleb Houston, Bart Jansen, J. Chen
article en

Abstract

Abstract We find evidence that insiders at resource constrained firms trade more often and in patterns indicating the use of private information. Our findings are driven by insider sales relative to cash‐based compensation. This indicates that when compensation is not directly tied to firm value, insiders are more likely to trade opportunistically, even if their trade transmits a negative market signal. Insiders also realize significant abnormal returns following transactions at resource constrained firms, indicating that insiders are trading with private information and consistently profiting. Overall, these results suggest that insiders at resource constrained firms utilize insider trading to supplement their compensation.

The Journal of Financial Research
Middle Tennessee State University (US), University of Alabama at Birmingham (US), Ithaca College (US)
Openalex Percentile: Top 62%
Corporate Finance and Governance
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