Is insider trading politically informative?

This study examines whether insider trading is politically informative and presents some evidence to hedge against firm-level political risk. Using quarterly data on U.S. listed firms from 2002 to 2021, we find that managers increase opportunistic insider sales prior to rises in firm-level political risk, while insider purchases show no significant change. Moreover, net opportunistic insider sales are positively associated with subsequent increases in a firm's political risk. These effects are more pronounced in firms with limited political connections, weaker innovation capability, and higher financial leverage, suggesting that political ties, innovation capability, and a sound financial structure serve as effective buffers against political risk. Our main results withstand a battery of robustness and endogeneity tests. Overall, our findings suggest that insider trading is politically informative, offering valuable insights for academics, regulators, and investors in interpreting such activities.