Insider trading as a vehicle to appropriate rent from R & D

Russell W. Coff, Peggy M. Lee

Research output: Contribution to journalArticle

39 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)183-190
Number of pages8
JournalStrategic Management Journal
Volume24
Issue number2
DOIs
StatePublished - Feb 1 2003
Externally publishedYes

Keywords

  • Competitive advantage
  • Insider trading
  • Knowledge
  • Rent appropriation

ASJC Scopus subject areas

  • Business and International Management
  • Strategy and Management

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