Abstract
In the wake of major corporate and accounting scandals in the early 2000s, some corporate executives concealed unfavorable information by delaying the disclosure of insider transactions. Consequently, the Section 403 of the Sarbanes-Oxley Act of 2002 was enacted to enhance timely filing of insider transactions. This paper investigates the effect of this mandate on the intensity and profitability of insider trading. Overall, our findings indicate that the accelerated filing requirement post-SOX is ineffective to curb insiders from trading on private information. Specifically, our difference-in-difference results suggest that the intensity and profitability of insider transactions have remained unchanged post-SOX. However, the mandate alters the manner in which insiders trade. To avoid leaking private information, some insiders lump their purchases post-SOX. Specifically, for insiders who filed late pre-SOX, after SOX the intensity of their purchases increases significantly more in the month when they trade relative to those in the control group, i.e., insiders who filed timely pre-SOX.
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