Insider Gains and Extreme Firm Valuation: Investigating Insider Trading in the Context of Firm Valuation in the Swedish Equity Market

Abstract: Information asymmetry driving insider gains is a widely discussed topic in finance academia. However, extreme firm valuation, often applicable to the premature loss-making firms seen in the today's trend of start-ups, has not been investigated in the context of insider trading. We find, in the Swedish equity market, that insiders in firms with extreme valuation generate excessive returns compared to other firms' insiders, particularly for insider purchases with results below the 1% level. Also, our findings suggest that it's explicitly an extreme valuation generating higher asymmetric information and thus, insider gains. Moreover, extreme firm valuation stands out as a key driver of asymmetric information when testing our results with previous literature's suggestions for sources of asymmetric information. Contributing with new insight about premature start-up firms, we conclude extreme firm valuation to be highly relevant in the context of insider trading.