The Effect Of Realized Future Growth Opportunities On Insider Trading

With the implementation of the new "company law" and the Equity Division Reform,management(directors,supervisors and senior executives)and large shareholders became the active subjects in financial markets,who injected vitality into the financial market,improved the market pricing efficiency and resource allocation efficiency.Meanwhile,they caused market concerns.Most empirical studies show that insider trading can earn abnormal returns.One argument for this comes from the managerial decision perspective that insiders have informational advantages over outsiders.Another argument comes from a trading perspective that insiders recognize pricing errors made by outsiders and trade against investor sentiment.In addition to trading for profits,insiders’ portfolio rebalancing objectives,tax considerations,behavioral biases,insider trading laws and enforcement,political connections and public information also play important roles in their trading decisions.This paper analyses the effect of realized future growth opportunities on insider trading.Based on the differences in transaction motivation,information and shareholding ratio between management and large shareholder,this paper adopts a separate study on management trading and large shareholder trading.This paper analyses the effect of realized future growth opportunities on management trading and the effect of realized future growth opportunities on large shareholder trading respectively.This paper observes firms listed on the Chinese stock market between 2006 and2019.The data are collected from the official websites of the Chinese stock exchange and the China Stock Market & Accounting Research(CSMAR)Database.Using a fixed effects model,this paper conducts empirical research on main effects.This paper introduces information transparency and the nature of equity as the moderating variables to verify their moderating effect on this process.This paper uses the instrumental variable method to alleviate the endogeneity problem,and uses the variable substitution method and the method of changing the sample selection range to test the robustness of the conclusions.The main conclusions of this paper are as follows:(1)Intangible information provides managements an opportunity to gain profit by means of selling stocks with high-level realized future growth opportunities in advance.Meanwhile,high information transparency of the firm will strengthen the management’s trading based on realized future growth opportunities.(2)Intangible information provides large shareholders an opportunity to gain profit by means of selling stocks with high-level realized future growth opportunities in advance.Meanwhile,the nature of equity of state-owned enterprise will restrain the large shareholders’ trading based on realized future growth opportunities.