Is insider trading informative about the persistence of future earnings? : A quantitative study of Swedish publicly listed firms

This study explores to what extent insider trading activity is associated with the persistence ofearnings in Swedish listed firms, and how the relationship varies depending on the nature ofaccruals and the direction of insider transactions. To assess the levels of earnings persistence,return on assets (ROA) is decomposed into two components: cash return (CROA) and accruals.Further, abnormal insider purchases, sales, and no trades are distinguished. The findings showthat firms with reported insider trades generally exhibit lower earnings persistence. Abnormalinsider sales, combined with income-decreasing accruals are further negatively associated withfuture earnings. In contrast, abnormal selling of shares in firms with income-increasingaccruals significantly improves earnings persistence. The findings also show that abnormalbuying of shares have little effect on the earnings persistence regardless of the direction ofaccruals. This result highlights a dual role of insider trading, both as a reflection ofinformational asymmetries and as potential signals to the market. This study contributes to theliterature by clarifying when insider trading may reflect opportunism or credible signaling,underscoring the importance of regulatory frameworks in interpreting the informational role ofinsider transactions.