Insider trading as a vehicle to appropriate rent from R&D
Year: 2002
Type: article
Abstract: While most insider trading is routine and legal, investors still treat it as new information about the firm's prospects—they assume that trades reflect managers' attempts to profit from their private information. This article explores insider trading as a mechanism to appropriate rent from R&D advances. We analyze stock price reactions to over 134,000 insider‐trading events and find that insider purchases generate larger positive stock price reactions for R&D‐intensive firms. Investors seem to assume that managers use insider trading to appropriate rent from R&D breakthroughs. We discuss how shareholders may prefer this rent appropriation mechanism over other forms of compensation that directly reduce the firm's income. Copyright © 2002 John Wiley & Sons, Ltd.
Source: Strategic Management Journal
DOI: 10.1002/smj.270
Authors: Russell W. Coff, Peggy M. Lee
Institution: Emory University
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W3125209405