Insider trades and private information: The special case of delayed-disclosure trades

In certain circumstances, insider trades such as private transactions between executives and their firms could be disclosed after the end of the firms fiscal year, on a Form-5 filing. We find that insider sales disclosed in such a delayed manner for large firms are predictive of negative future returns (6 to 8 percent), as well as lower future annual earnings relative to analyst forecasts. These results stand in contrast to existing findings on the uninformativeness of quickly disclosed open-market insider sales. The Sarbanes-Oxley Act curtailed the use of Form 5 under the presumption that managers used this vehicle opportunistically. Our systematic evidence supports this presumption.