How do insider trades affect voluntary nonfinancial disclosures? Evidence from product and business expansion disclosures

Voluntary nonfinancial disclosures of product and business expansion planning occur frequently in practice and are an important vehicle by which managers convey corporate information to outsiders. However, little is known about how the opportunistic incentives of managers affect the choice of such nonfinancial disclosures. This study examines whether managers make their voluntary nonfinancial disclosures strategically for self-serving trading incentives. I find strong and robust evidence that managers manipulate the timing and selectivity of their nonfinancial disclosures to maximize trading profits. Specifically, managers tend to disclose bad (good) news on product or business expansion information before purchasing (selling) shares. I also find that such strategic behavior is more evident when the expected price impact of the disclosures is greater and when the CEOs are more powerful. However, I do not find evidence that the strategic behavior is weaker for firms with high institutional stock ownership. Overall, my results contribute to understanding managers’ strategic use of nonfinancial disclosures in fulfilling personal trading incentives; they should be of interest to boards of directors which monitor and restrict opportunistic managerial disclosures and insider trades.