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 language | English (US) |
|---|---|
| Pages (from-to) | 183-190 |
| Number of pages | 8 |
| Journal | Strategic Management Journal |
| Volume | 24 |
| Issue number | 2 |
| DOIs | |
| State | Published - Feb 1 2003 |
| Externally published | Yes |
Keywords
- Competitive advantage
- Insider trading
- Knowledge
- Rent appropriation
ASJC Scopus subject areas
- Business and International Management
- Strategy and Management