Insider trading by Swedish CEOs

Abstract: Purpose: The purpose of this study is to investigate whether certain CEO- and firm characteristics have an impact on the extent of abnormal return on Swedish firms at the event of a CEO insider trade. Furthermore, the study aims to examine whether there is a difference depending on firm size and sector. Methodology: An event study has been performed based on the market model where the presence of abnormal return has been calculated from a three-day event window followed by a confirming t-test. OLS-regression models were implemented to identify the effect of the explanatory variables. The regressions were furthermore grouped by size and controlled for sector. Theoretical perspectives: The theoretical perspectives are derived from the Efficient Market Hypothesis, Information Asymmetry and Signaling. These three theories are applicable when assessing abnormal return at the event of new information reaching the market. Empirical foundation: The complete data sample consists of 236 firms and 1,764 individual insider trades within Large Cap, Mid Cap and Small Cap firms on Nasdaq OMX Stockholm. The retrieved data is based on the ten-year period from 2012 to 2021. Conclusions: The study provides evidence of abnormal return at the event of insider trading, which is larger for smaller firms. Furthermore, the study proposes that CEO- and firm characteristics do affect the extent of abnormal returns. The direction and extent of the abnormal return depends on the explanatory variable in question and firm size.