Asymmetric information and inside management trading in the Chinese market

Abstract

Insider trading incentives have been widely examined in stock markets, but mainly in developed countries. Given the fact that the volatility of stock exchange markets in emerging economies is typically even higher, there is a need for research to explore the extent to which information asymmetry plays a role in management trading incentives in emerging economies. To address this research need, this study examines management trading incentives in relation to investment efficiency in Chinese listed firms on the main board and on the small- to medium-enterprises (SME) board in the period 2006 to 2017. We find that executives buy shares when firms’ investments are more efficient. The frequency of management buying also increases with investment efficiency. However, managers do not sell their shares according to firms’ investment efficiency. Moreover, executives of firms listed on the main board trade more on the asymmetric information of investment efficiency than those on the SME board.