Disclosure quality and management trading incentives

I examine whether managers alter disclosure "quality" in response to personal incentives, specifically those incentives derived from trading on their own account. Using changes in market liquidity to proxy for disclosure quality, I find that trading incentives affect disclosure quality choices. Tests are performed across three disclosure samples: management forecasts, conference calls and press releases. Consistent with a desire to maintain an information advantage, I find that managers provide lower quality disclosures prior to purchasing shares than they provide in the absence of trading. Consistent with a desire to reduce the probability of litigation, I find that managers provide higher quality disclosures prior to selling shares than they provide in the absence of trading. This study contributes to the disclosure literature by providing evidence that managers' personal incentives affect their disclosure choices.