The Governance Effect of the Medias News Dissemination Role:

Evidence from Insider Trading

Lili Dai, Jerry T. Parwada, and Bohui Zhang

Current Version: January 2015

Dai (lili.dai@anu.edu.au) is from the ANU College of Business and Economics, Australian National University,
Canberra, ACT 0200, Australia. Parwada (j.parwada@unsw.edu.au) and Zhang (bohui.zhang@unsw.edu.au) are from the
School of Banking and Finance, UNSW Australia, Sydney, NSW 2052, Australia. We thank Douglas Skinner (the editor),
an anonymous referee, Rene Adams, Sudipta Basu, Oleg Chuprinin, David Feldman, Neal Galpin, Ian Gow, Mark
Greenblatt, Wayne Guay, Rebecca Hann, Jonathan Karpoff, Lawrence Kryzanowski, Mark Lang, Christian Leuz,
Ningzhong Li, Ronald Masulis, Greg Miller, Peter Pham, Richard Roll, Jianfeng Shen, Ahmed Tahoun, Dan Taylor, Irem
Tuna, Terry Walter, Ivo Welch, Sarah Zechman, and Qiaoqiao Zhu. We thank seminar participants at the Australian
National University, UCLA, the University of Miami, UNSW Australia, and the University of Washington. We also thank
participants at the 2014 Journal of Accounting Research Conference, Chicago; the 2014 European Financial Management
Annual Meetings, Rome; the 2014 World Finance Conference, Venice; the 2013 Northern Finance Association
Conference, Quebec City; the 2013 FIRN Conference, Hunter Valley; the 2013 Behavioural Finance and Capital Markets
Conference, Adelaide; and the 2013 RSFAS Research Summer Camp, Batemans Bay, for providing many helpful
comments and suggestions.

The Governance Effect of the Medias News Dissemination Role:

Evidence from Insider Trading

ABSTRACT
We investigate whether the media plays a role in corporate governance by disseminating news. Using
a comprehensive dataset of corporate and insider news coverage for the 2001-2012 period, we show
that the media reduces insiders future trading profits by disseminating news on prior insiders trades
available from regulatory filings. We find support for three economic mechanisms underlying the
disciplining effect of news dissemination: the reduction of information asymmetry, concerns
regarding litigation risk, and the impact on insiders personal wealth and reputation. Our findings
provide new insights into the real effect of news dissemination.

JEL classification: G32, G34, J33, M41

Keywords: Media, Information dissemination, Corporate governance, Insider trading

1. Introduction
That the media plays a role in corporate governance is well known.1 What is less clear is how
the governance effect of the media works. Existing evidence supports the notion that the media
disciplines managers by creating content that exposes governance problems (Miller [2006], Dyck,
Volchkova, and Zingales [2008]). We use evidence from a large sample of insider trading filings to
investigate whether the medias news dissemination role directly affects governance.
The SEC requires insiders to report their trading activities on Form 4 filings, which are
typically disseminated through the media. 2 This setting provides us with a useful opportunity to
examine the effect of the medias dissemination role on corporate governance, and specifically in
restricting insiders trading profits. Since news dissemination increases the breadth of coverage and
the attention of investors through repetition (Fang and Peress [2009], Bushee et al. [2010],
Blankespoor, Miller, and White [2014], Peress [2014]), we conjecture that the media reduces the
profitability of insiders future transactions by disseminating regulatory releases of prior insider
trading activities. We call this view, which forms our main hypothesis, disciplining via dissemination.
Our main hypothesis is based on three mechanisms. First, by disseminating news on prior
insider trades, insiders information advantage is reduced and prices adjust more quickly to the news
(Bushee et al. [2010], Tetlock [2010]), directly reducing the profitability of future insiders trades. We
refer to this attenuation effect of the media on insiders profits as the information asymmetry channel.
Second, recent studies show that litigation can restrict and punish insiders opportunistic behavior,
especially their selling activities (Cheng, Huang, and Li [2013], Billings and Cedergren [2014]).
Therefore, because of concerns regarding litigation risk, insiders in firms in the media spotlight avoid
opportunistic trading strategies and thereby earn reduced profits. We refer to this effect of news

See, for example, Dyck and Zingales [2002], Miller [2006], Core, Guay, and Larcker [2008], Dyck, Volchkova, and
Zingales [2008], Joe, Louis, and Robinson [2009], Dyck, Morse, and Zingales [2010], Kuhnen and Niessen [2012], and
Liu and McConnell [2013].
2
Regarding the typical financial press coverage of insider trades, see, for example, Lock-Up Expires for LinkedIn
Shares, and Insiders Cash In, New York Times, 22 November 2011. Moreover, numerous websites are dedicated to
insiders trading activities gleaned from SEC filings, for example, www.secform4.com and www.insiderslab.com. Stories
featuring data from such websites frequently appear in prominent newspapers and business magazines.

coverage as the litigation risk channel. Third, since the dissemination of insider trading news can
adversely affect executives personal wealth and reputation (Dyck, Volchkova, and Zingales [2008]),
we expect that the disciplining effect of news is more pronounced when executives have a greater
amount of personal capital tied to firms. We refer to this mechanism as the capital-at-risk channel.
We examine our hypotheses using more than 1.375 million trades by U.S. corporate insiders
from Thomson Reuters.3 Corporate news coverage data from RavenPack provide us with the number
of Dow Jones news releases that are associated with the insiders firms. Following Jagolinzer, Larcker,
and Taylor [2011], we compute insiders profits as the alpha earned during the 180-day window after
an insiders buy or sell transaction. We investigate whether insiders consistently earn future abnormal
profits when they face news coverage on their prior trades. Our examination is similar to recent
studies of corporate activities conditional on prior media coverage (e.g., Core, Guay, and Larcker
[2008], Kuhnen and Niessen [2012] on executive compensation; Braggion and Giannetti [2013] on
limited voting shares). Consistent with our disciplining via dissemination hypothesis, we find a
negative association between insiders future trading profits and news coverage of regulatory releases
of insiders prior trading activities.
Next, we find evidence suggesting that our disciplining via dissemination hypothesis operates
through three economic channels, namely, information asymmetry, litigation risk, and capital-at-risk.
First, we show that news coverage is more effective in attenuating insiders profits in firms with
higher analyst forecast dispersion and in firms that are not audited by Big N auditors. Second, we
adopt Kim and Skinners [2012] litigation risk measure and find that the effect of news coverage is
more pronounced in firms that face higher litigation risk. Finally, we find that the relation between
insiders trading profits and news coverage is magnified when insiders personal capital, proxied by

Following the literature, we examine legal insider trading that is disclosed to the SEC. We discuss the regulation of
insider trades in detail in the Internet Appendix. The profitability of insider trades is one of the most tangible signs of poor
corporate governance (Aboody and Lev [2000], Frankel and Li [2004], Piotroski and Roulstone [2005], Huddart, Ke, and
Shi [2007], Ravina and Sapienza [2010], Jagolinzer, Larcker, and Taylor [2011], Cohen, Malloy, and Pomorski [2012],
Dai et al. [2014], Cziraki, De Goeij, and Renneboog [2014]).
2

executives equity-based compensation and the strength of firms corporate social responsibility (Gao,
Lisic, and Zhang [2014]), is more closely tied to firms.
In additional tests, we provide evidence in support of our main findings. First, the negative
effect of news coverage on insiders trading profits operates by reducing trading profits instead of
increasing trading losses. Second, to rule out the possibility that the media engages in information
creation rather than mere news dissemination, we show that initial news coverage alone does not have
a significant influence on insiders trading profits. Third, news coverage significantly reduces the
incidence of abnormal insider trading activities and transactions executed around earnings
announcements. Finally, using both instrumental variable (IV) and natural experiment approaches,
our endogeneity analysis suggests that news dissemination has a causal disciplining effect on insiders
trading profits.
Our paper is among the first to link news coverage with insider trading. Frankel and Li [2004]
examine the effect of financial statement informativeness, analyst following, and company news on
insiders profits and frequency. The authors find a nonsignificant relation between a firms general
news coverage (e.g., new product announcements), which is used as an alternative variable to proxy
for a firms information environment, and its insiders profits. Instead of focusing on firms general
news coverage, our study examines the dissemination effect of insider trading-related news and shows
that such news coverage does play a governance role in restraining insiders trading profits.
More broadly, our paper contributes to the literature on the corporate governance role of the
media. The literature recognizes the role of the news media in bringing governance issues to the
attention of shareholders (Tetlock [2007], Dyck, Volchkova, and Zingales [2008]), board members
(Joe, Louis, and Robinson, [2009]), corporate policymakers (Dyck, Morse, and Zingales [2010]), and
the general public (Miller [2006], Dyck, Volchkova, and Zingales [2008]). Examples of documented
ways in which the media exerts a governance role include reversing governance violations (Dyck,
Volchkova, and Zingales [2008]), pressuring managers to act in ways that are socially acceptable

(Dyck and Zingales [2002]), and monitoring executive compensation (Core, Guay, and Larcker
[2008], Kuhnen and Niessen [2012]). By isolating the news dissemination role of the media from its
information creation role, we show that news dissemination by itself can discipline managers.
In the remainder of this article, Section 2 develops our hypotheses. In Section 3, we describe
our data and methodology. We present the main findings in Section 4 and the results of additional
tests in Section 5. Section 6 concludes the paper.

2. Hypothesis Development
The media rebroadcasts or disseminates regulatory information to the market more broadly
compared with the regular regulatory filing process. Previous studies highlight the information
dissemination effect of media coverage with regard to, for instance, SEC insider trading filings
(Chang and Suk [1998]), general regulatory filings (10-K and 10-Q) (Li, Ramesh, and Shen [2011]),
corporate governance violations (Dyck, Volchkova, and Zingales [2008]), and accounting fraud
(Miller [2006]). Moreover, the dissemination of regulatory information by the media can enhance the
breadth of coverage and can attract the attention of investors through repetition (Fang and Peress
[2009], Bushee et al. [2010], Blankespoor, Miller, and White [2014], Peress [2014]). Therefore, we
propose the disciplining via dissemination view as our main hypothesis:
H1: Media coverage of insider trades reduces the profitability of insiders future
transactions.
The counterfactual to our main hypothesis is that news dissemination by the media does not
affect insiders trading profits. If the media is only effective through news creation and analysis, then
news coverage that simply repeats regulatory releases of insider trading activities without adding new
information should not improve firms information environment or actively influence insiders trading
activities. Therefore, either insiders information advantage relative to the public is not affected, or
insiders do not view the media as a potential threat to their careers or personal wealth. We consider
this view to be the null hypothesis.
4

We further identify three economic mechanisms underlying the disciplining effect of news
dissemination (H1), which are framed as additional hypotheses. First, stock prices adjust more
quickly to firms fundamentals through the dissemination of news coverage on prior insider trades,
and thus, the profitability of future trades is reduced for firms with lower information transparency.
Therefore, the hypothesis regarding this information asymmetry channel is formally stated as follows:
H2a: The disciplining effect of media coverage is stronger in firms with greater information
asymmetry.
Our second and third mechanisms identify credible circumstances under which informed
insiders should be concerned about past and future news coverage of their trades and thus alter their
future actions. With regard to litigation risk, Billings and Cedergren [2014] find evidence that
litigation risk increases with insiders opportunistic selling. According to some accounts, 40-60% of
all securities class actions involve allegations of insider trading (Erickson [2010]). Because of
concerns regarding litigation risk, insiders significantly reduce their selling activities after securities
class actions (Cheng, Huang, and Li [2013]) or avoid profitable transactions immediately prior to
earnings announcements (Huddart, Ke, and Shi [2007]). Based on these findings, we hypothesize that
after the financial press disseminates news of insiders trading activities, insiders fear of being sued
affects the extent to which they seek to profit from subsequent trades by relying on non-public
material information.4 We expect this effect to be particularly evident in firms with high litigation risk.
We propose our hypothesis on the litigation risk channel as follows:
H2b: The disciplining effect of media coverage is stronger in firms with higher litigation
risk.
For the third mechanism, we argue that the dissemination of insider trading news can
adversely affect insiders personal wealth and reputational capital. First, the intensive public exposure
of opportunistic trading by insiders can raise investors concerns regarding a firms internal

Ex ante, opportunistic insider trades do not necessarily trigger SEC enforcement. However, securities class actions
can be filed or can be augmented even if the insider trades are legal. The probability of enforcement and the resulting
punishment, as perceived by insiders, can be influenced by the media (Dyck, Volchkova, and Zingales [2008]).
5

governance and growth prospects and can hence reduce insiders personal wealth that is tied to firm
value. Moreover, the ability to exercise discretionary trading in the future is valuable to insiders
because it allows them to sell for consumption (Roulstone [2003]) and rebalance their personal
portfolio for hedging purposes (Ofek and Yermack [2000]). Hence, we expect insiders with large
equity holdings to be concerned about further restrictions on their ability to trade profitably, when
their prior opportunistic trades capture media attention.
Second, prior studies suggest that reputation plays a role in disciplining managers and
directors (Dyck and Zingales [2002], Dyck, Volchkova, and Zingales [2008]). Liu and McConnell
[2013] further argue that the media, through effects from both news dissemination and news creation,
affects managerial reputational capital. Therefore, managers should be concerned about the possibility
that extensive news coverage of insider trading leads to the destruction of their reputational capital.
This reasoning is similar in spirit to that of Gao, Lisic, and Zhang [2014], who attribute their finding
of a negative association between corporate social responsibility and insiders trading profits to
circumstances when executives personal interests are more closely aligned with the interests of the
firm. Taken together, these arguments suggest that the medias disciplining effect is stronger when
executives personal wealth and reputational capital are more closely tied to their firm. We propose
our hypothesis regarding this capital-at-risk channel as follows:
H2c: The disciplining effect of media coverage is stronger in firms in which executives have
greater concerns about the impact of media coverage on their personal capital.
These channels are not mutually exclusive. For instance, the last two channels may be jointly
related to a naming and shaming effect on insiders. Finding evidence in support of these channels
would strengthen the plausibility of our baseline results.

3. Research Design
3.1. DATA
Our insider trading sample is based on the Thomson Financial Insiders Data Feed sourced
from Form 4 filings over the period from January 2001 to June 2012, and it includes corporate
insiders transactions involving stocks that are listed on the NYSE, AMEX, or NASDAQ.5 The data
contain trade information on directors, officers, and large stockholders with holdings greater than 10%
of a firms stock, all of which are subject to SEC disclosure requirements.
We exclude transactions by large shareholders and retain only those attributed to officers and
directors. We focus on valid purchases and sales of common stocks (share codes 10 and 11) in the
Center for Research in Security Prices (CRSP) database.6 We further exclude (1) transactions with
fewer than 100 shares or those with trading prices of less than $2, (2) transactions with traded prices
outside the range between the daily low and high prices reported in the CRSP database, (3)
transactions with the number of shares exceeding the total number of outstanding shares in the CRSP
database, (4) transactions with the number of shares traded exceeding the total daily trading volume in
the CRSP database, and (5) firms in the financial or utilities industries (firms with SIC codes between
6000 and 6999 or between 4900 and 4999). Finally, we exclude trades of stocks that have never been
covered by RavenPack. These restrictions result in a final sample of more than 1.375 million insider
transactions.
Following Jagolinzer, Larcker, and Taylor [2011], we define the profitability of insider trading
as the annualized abnormal return from the Carhart [1997] four-factor model estimated over the 180
calendar days after the transaction date (Alpha) based on the CRSP database.7 From the insider trade

Our insider trading sample ends in June 2012 because our stock return data in the CRSP database are available up to
December 2012, whereas we estimate the trade profits for six months after the transaction.
6
A valid transaction is one without a Cleanse Indicator code of A or S in the Thomson Financial Insiders Data
Feed. The Cleanse Indicator denotes Thomson Reuters' level of confidence concerning the accuracy of a particular record.
We disregard observations that are coded A (indicating that an attempt was made at cleansing but that the data still
appear unreasonable or inconsistent) and S (where the security does not meet the collection requirements).
7
The 180-day window is particularly appropriate for accommodating the six-month legal prohibition on short-swing
profits: the SEC requires company insiders to return any profits made from the purchase and sale of company stock if
both transactions occur within a six-month period. For sales, Alpha is multiplied by -1.
7

data, we also construct other variables, including trade size (Trade Size), with each transaction size in
dollars, and trade frequency (Trade Frequency), which is the number of insider transactions of a firm
in the 360-day period preceding each insider trade.
We obtain data on the news coverage of NYSE, AMEX, or NASQAQ stocks during the period
from January 2000 to June 2012 from RavenPack, a leading global news database that includes Dow
Jones Newswire alerts on stories that are published about companies.8 News articles are categorized
by using RavenPacks proprietary text and part-of-speech tagging or labeling. The news category
regarding insider trading contains three subcategories: regulatory releases of insiders transactions
(98.15%), insiders share gifts (1.84%), and insiders lawsuits (0.01%). Given that we explore the
news dissemination effect of the media, we drop news events concerning insiders share gifts and
lawsuits and concentrate on regulatory releases of insiders transactions.
To measure the informational content of a news story, RavenPack generates company
relevance and novelty scores ranging from zero to 100. The company relevance scores allow us to
extract and compute aggregate counts of news articles that are related to specific firms in the database.
We only include news articles with relevance scores equal to 100, which indicates that a firm is
quoted as the main subject of a news release. In an additional analysis, we utilize the novelty scores to
identify the originality of the news releases. Further, and importantly for our empirical design, based
on the news category information, we count news articles that are specific to regulatory releases of
prior insider trading activities (News CoverageIT) separately from a firms general news coverage
(News CoverageNon-IT) over the 360 calendar days, scaled by 100.
Finally, we obtain accounting information from Compustat, analyst forecast data from I/B/E/S,
and audit data from Audit Analytics. Managerial compensation information is taken from BoardEx,
and measures of adherence to corporate social responsibility are estimated based on KLD Research

RavenPack has been increasingly used in the literature (e.g., Kolasinski, Reed, and Ringgenberg [2013], Dang,
Moshirian, and Zhang [2014], Shroff, Verdi, and Yu [2014]).
8

and Analytics. Our final sample includes over 4,600 stocks. As the data requirements differ across our
tests, the sample size varies depending on data availability.

3.2. SUMMARY STATISTICS

Table 1 reports the descriptive statistics of the main variables for 1,376,567 insider
transactions. The definitions of these variables are detailed in the Appendix. We find that the mean
annualized insider trading profit (Alpha) is approximately 1%, which is comparable to that reported in
Jagolinzer, Larcker, and Taylor [2011]. On average, the press publishes 97 news articles (0.971100)
that are specific to regulatory releases of insiders trading activities and 110 articles that are not. Panel
B reports the Pearson (Spearman) correlation coefficients among our main variables. We find that
News CoverageIT is negatively correlated with Alpha, consistent with our main hypothesis.
Table 2 presents the time-series variation of news coverage by year and firm size in Panel A
and around SEC filings in Panel B. The number of news articles increases over our sample period
from 2001 to 2012 (based on insider trading dates). Much of the increase in insider trading-related
news (News CoverageIT) occurs after the first four years of our sample period, which coincides with
the formal initiation of the coverage of Form 4 filings by Dow Jones in January 2004 (news coverage
is estimated for one year prior to the trading date). For example, for large firms, 43.7 (0.437100)
articles were written prior to the trades executed in 2001, whereas 84.1 articles were written prior to
the trades in 2012. Panel B shows the time-series variation of news coverage around SEC filings
based on the main sample of insider trades. The window is specified five days before and after SEC
filings. The result shows that news articles about regulatory releases of insider trading activities
cluster on insider trading days, whereas news articles about other corporate events do not show such a
distribution.

3.3. DETERMINANTS OF NEWS COVERAGE

Following Core, Guay, and Larcker [2008], we first identify the model to examine the
determinants of media coverage. This step helps us better understand whether any systematic
difference in press coverage practices exists between insider trading-related news (News CoverageIT)
and general news on firms (News CoverageNon-IT).
Table 3 reports the results of our regression test on the determinants of news coverage, which
are presented separately for News CoverageIT and News CoverageNon-IT. The dependent variable is the
number of news releases for each firm-year observation based on news release dates from 2000 to
2011. Following the literature, we include the firm-level control variables that we incorporate in the
analysis of the determinants of insiders trading profits. These variables are insider trade frequency
(Trade Frequency), firm size (Size), market-to-book ratio (MB), annual stock return (Return), stock
return volatility (STD), and research & development expenses (R&D). 9 We incorporate return on
assets (ROA) and an S&P 500 indicator (S&P 500) to control for the sensitivity of media coverage to
firm performance and to the publics demand for news (Core, Guay, and Larcker [2008]), respectively.
We measure all the independent variables in the year preceding the news coverage variables.
We find that News CoverageIT is positively correlated with Trade Frequency, whereas News
CoverageNon-IT is not. Therefore, based on our disciplining via dissemination hypothesis, firms
general news coverage should not restrict future transaction profits via the dissemination of regulatory
releases of prior trading activities. This result reconciles the findings in Frankel and Li [2004], who
fail to find a disciplining effect of firms general news coverage on insiders profits. Accordingly, for
our main analysis in Section 3.4, we also distinguish News CoverageIT from News CoverageNon-IT, and
we expect that the disciplining effect exists only for News CoverageIT.
With regard to the other independent variables, we find that firm size is an important
determinant of news coverage, i.e., larger firms attract more media attention in general. The positive

See more discussion on these variables in Section 3.4.

10

relation between News CoverageIT and firm performance (Return and ROA) indicates that the media
concentrates on insiders in well-performing firms, where insiders trading behavior is likely to be of
greater interest to the market. By contrast, News CoverageNon-IT is negatively associated with firm
performance, which is consistent with the literature documenting that poor performing firms attract
media attention on issues such as excessive executive compensation (Core, Guay, and Larcker [2008]).

3.4. EMPIRICAL SPECIFICATION

To examine the effect of news coverage on insider trading behavior (H1), we specify a model
for our main analysis based on recent papers that analyze corporate actions conditional on prior media
coverage as follows:10

Alpha = + IT News CoverageIT + Non-IT News CoverageNon-IT

+ CV Control Variablesi + FE Fixed Effects + ,

(1)

Our main variable of interest is News CoverageIT, denoting the number of news releases
related to prior insider trading activities. 11 We expect the coefficient on News CoverageIT to be
significantly negative (H1).
Following Lakonishok and Lee [2001], we include Size and MB to control for size and bookto-market effects, respectively (Fama and French [1997]). In addition, following Brochet [2010], we
control for momentum (Return), stock return volatility (STD), R&D, Trade Size, and Trade Frequency.
Return controls for insiders potentially contrarian behavior. STD and R&D are included because
insider trades are likely to be more informative in firms with higher information risk and higher R&D
intensity (Aboody and Lev [2000]). Trade Size controls for the possible link between the importance

10

See, for example, Core, Guay and Larcker [2008] and Kuhnen and Niessen [2012] on executive compensation and
Braggion and Giannetti [2013] on limited voting shares.
11
In this main test, we also control for News CoverageNon-IT, denoting the number of new articles that are not related to
insider trading. Since the coefficient on this variable is not statistically significant, in subsequent analyses, we do not
control for this variable. However, our results in subsequent analyses are robust to the inclusion of News CoverageNon-IT.
11

of private information and the number of shares traded. Trade Frequency controls for either preemptions of the information content of insider trades or the reinforcement of prior signals from such
trades. We also add industry and year fixed effects to control for cross-sectional and time-series
dependence, and we cluster standard errors at the firm level.12
Furthermore, we examine the economic channels through which news dissemination can have
a disciplining effect on insiders (H2) by using the following model:

Alpha = + IT News Coverage IT + ITCF News Coverage IT Channel Factor

+ CF Channel Factor + CV Control Variables i + FE Fixed Effects + ,

(2)

Each Channel Factor is a proxy that is variously related to information asymmetry (analyst
forecast dispersion and a Big N auditor indicator), litigation risk (Kim and Skinners [2012] litigation
risk measure), or managers personal wealth and reputation tied to the firm (managers equity-based
compensation and the strength of a firms adherence to corporate social responsibility). The
coefficient on the interaction term between News Coverage IT and each Channel Factor is expected to
be significantly negative (except for the Big N auditor indicator, which is an inverse measure of
information asymmetry), implying that the medias governance effect operates through these three
economic mechanisms (H2).

4. Results
4.1. BASELINE FINDINGS
The evidence presented in Table 4, based on regression equation (1), shows that previous
news coverage regarding firm insiders trading activities generally reduces insiders subsequent
trading profits. In Model (1), the coefficient on News CoverageIT is significantly negative (t-stat = 3.89). Thus, future insiders profits are largely attenuated when the press reports prior transactions of

12

We control for industry fixed effects because Solomon and Soltes [2012] show that industry-specific factors explain
a significant proportion of the variation in firm media coverage.
12

insiders, which is consistent with H1, our disciplining via dissemination hypothesis. Economically,
the magnitude of this effect is also sizeable. A one-standard-deviation increase in news coverage
related to insider trading is associated with a 3.4% decrease in the abnormal stock returns of insider
trades. However, in Model (2), the coefficient on News CoverageNon-IT is positive but nonsignificant
(t-stat = 0.68). This coefficient remains nonsignificant in Model (3), where we include both News
CoverageIT and News CoverageNon-IT, suggesting that a firms general news coverage does not
necessarily restrict insider trading activities (Frankel and Li [2004]).
In Models (4) to (7), we subject our baseline findings to various robustness tests. Model (4)
addresses the impact of overlapping and confounding events around insider trades. Specifically, we
estimate our model based on a subsample of insider trades with no earnings announcements in a tenday window [-10, 10] before and after the transaction dates of insider trades. In Model (5), we use the
change in news coverage from year t-1 to year t as the focal explanatory variable, and we control for
firm fixed effects.13 In Models (6) and (7), we aim to trace the media effect to insiders who can be
specifically named in the news. We regress Alpha of insider i in firm j on news coverage related to a
specific insiders transactions (News CoverageSIT) and on news coverage that is not related to a
specific insiders transactions (News CoverageNon-SIT). News CoverageSIT is the number of firm js
news releases related to insider trading in a window [0, 1] around the SEC filing date of insider i,
while News CoverageNon-SIT is equal to the total number of firm js news articles minus news coverage
related to a specific insiders transactions. Both the variables are scaled by 100. The results indicate
that news coverage of prior trades made by a specific insider effectively restricts his/her trading
profits in the future.
We find that our results are also robust to: (1) using alternative measures of insiders' trading
profits, clustering methods, and sample selections; (2) controlling for stale news coverage estimated in

13

Prior studies on the media (e.g., Core, Guay, and Larcker [2008], Kothari, Li, and Short [2009], Bushee et al. [2010],
Liu and McConnell [2013]) do not control for firm fixed effects, possibly owing to the sticky effect of news coverage. We
replace the level of news coverage with the change in news coverage to increase the time-series variation of the news
coverage measure and then control for firm fixed effects. If news coverage data are not available in year t-1, we use the
average news coverage among all the firms in year t as the benchmark to calculate the change in news coverage.
13

year t-2 and t-3; (3) focusing on news coverage with high value impact on the market, and news
articles published within 180 days before an insider transaction; and (4) adding other governance
factors, including institutional ownership, analyst coverage, Big N auditor, board independence, and
CEO-Chairman duality into our analysis.14

4.2. ECONOMIC CHANNELS

4.2.1. The information asymmetry channel. Our main conjecture with respect to this channel is
that the media can reduce information asymmetry between managers and investors. Since insiders
opportunistic trading activity increases according to managers information advantage, we expect the
disciplining effect of the media to be more pronounced in firms with higher information asymmetry
(H2a).
To operationalize measures for our investigation, we use two variables to identify firms as
having environments with either high or low information asymmetry. Specifically, we utilize Analyst
Forecast Dispersion, measured as the standard deviation of analysts earnings forecasts scaled by
stock prices (Zhang [2006]), to identify firms with high information asymmetry. We employ a Big N
auditor dummy (Behn, Choi, and Kang [2008]) as an indicator of low information asymmetry.15 Both
information asymmetry measures are estimated one year prior to insider trades.
We compile the results of this analysis, based on equation (2), in Panel A of Table 5.
Consistent with H2a, in Model (1), the coefficient on the interaction term between News CoverageIT
and Analyst Forecast Dispersion is significantly negative, indicating that the media is effective in
attenuating insiders profits when firms are characterized by high information asymmetry. Conversely,
when information asymmetry is low in firms audited by Big N auditors, the result is reversed.
Moreover, the coefficient on News CoverageIT remains significant and negative. Overall, the results

14

The results of robustness tests are reported in the Internet Appendix Tables IA1-IA4.
Behn, Choi, and Kang [2008] demonstrate that firms that are audited by the Big N audit firms report more credible
and accurate financial statements.
15

14

support the conjecture that the reduction of information asymmetry is an underlying mechanism
through which news coverage affects insiders trading profits.
4.2.2. The litigation risk channel. With respect to this channel, we hypothesize that after the
financial press disseminates trading news on company executives, insiders fear of being sued or
being charged by the SEC if they profit from any non-public material information affects the extent to
which they seek to profit from subsequent trades. Therefore, news coverage is more likely to affect
insiders in firms with higher potential for litigation (H2b).
We adopt Kim and Skinners [2012] litigation risk (LR) measure, which is calculated prior to
the insider trading dates. The Kim and Skinner [2012] measure is particularly appropriate for our
analysis because it measures the predictability of securities class actions against firms based on their
corporate attributes. Securities class actions often challenge insider trading by individuals associated
with such public companies. We report the results in Panel B of Table 5. Consistent with H2b, in
Model (1), we show that the media is more effective in reducing the profits of insiders in firms that
face higher litigation risk. This finding implies that because of their fear of litigation, insiders pursuit
of profits from trading is restricted when the public and media pay more attention to likely
opportunistic insiders.
As an alternative test for the litigation risk channel, we investigate whether the news coverage
effect is influenced by the direction of trades and the type of insiders. Since courts look for evidence
that insiders engaged in selling rather than buying to establish that the defendants acted with scienter,
or intent, in allegations of insider trading and securities fraud,16 we expect the media effect to be
stronger for insider sales. In addition, we conjecture that the medias disciplining effect is stronger on
officers than on the board of directors, as officers have more to lose from litigation. For Models (2) to

16

See, for example, Sale [2002], Cheng and Lo [2006], Rogers [2008], Brochet [2010], Rogers, Van Buskirk, and
Zechman [2011], Billings and Cedergren [2014], and Brochet and Srinivasan [2014].
15

(7), the results confirm that the attenuating effect of news on insiders profits pertains to insider sales
and officers trades.17
As a by-product, our results suggest that the media, through the litigation risk channel, is at
least partially responsible for the common empirical finding that, on average, insiders profit from
purchases (which we find are apparently immune to the news coverage effect) but not from sales (see,
e.g., Aboody and Lev [2000], Huddart and Ke [2007], Jagolinzer, Larcker, and Taylor [2011],
Davidson, Dey, and Smith [2013]).
4.2.3. The capital-at-risk channel. We hypothesize that the association between news coverage
and insiders profits is stronger when insiders are more concerned about the future value of their
equity holdings, as well as their reputational capital that is tied to the firm (H2c).
To test this hypothesis, we use variables for executives equity compensation, CEO and
Executives Equity Compensation, measured by the log value of the amount of total equity
remuneration, as proxies for insiders concerns regarding their personal wealth (Roulstone [2003],
Ofek and Yermack [2000]). Our corporate social responsibility variables (Corporate Social
Responsibility) represent insiders concerns regarding their reputational capital (Gao, Lisic, and
Zhang [2014]).
Consistent with the personal wealth argument in H2c, the results reported in Panel C of Table
5 indicate that equity-based incentives increase the impact of news coverage on insiders trading
profits. In Models (1) and (2), the coefficients of the interaction terms between news coverage and
managerial equity compensation are negative and significant. In addition, consistent with the
managerial reputation argument in H2c, Models (3) and (4) indicate that the disciplining effect of the
media is stronger when managers are more concerned about their reputational capital.

17

In another test for the litigation channel presented in Internet Appendix Table IA5, we run logistic models for firmyear panel data by regressing SEC investigation and/or lawsuit indicators in year t on the interaction terms between
average firm-level Alpha and News CoverageIT in year t-1. The results indicate that firms with more profitable insider
trades and greater news coverage regarding these transactions are more likely to be investigated by SEC and to be sued
owing to legal, insider trading, and/or fraud issues. These indicator variables are constructed based on relevant regulatory
and litigation news releases from RavenPack.
16

5. Additional Tests
To corroborate our main results, we perform additional analyses on the governance effect of
news coverage. Specifically, we (1) examine whether news coverage increases insiders trading losses
instead of reducing their trading profits, (2) perform stress tests on the disciplining effect of news
dissemination, (3) check whether news coverage also affects insiders trading intensity, and (4)
attempt to establish a causal relation between news dissemination and insiders trading profits.

5.1. INCREASING INSIDERS TRADING LOSSES OR DECREASING TRADING PROFITS?

The negative coefficient on news coverage from our main findings cannot directly show
whether trade profits are reduced or whether trade losses are magnified by news coverage. To address
this issue, we compute the expected Alpha based on the decile-ranking values of News CoverageIT,
conditional on the means of firm-level control variables and unreported industry and year fixed
effects in our baseline regression. This analysis allows us to assess the marginal effect of News
CoverageIT on Alpha.18
The results reported in Table 6 indicate that for an average transaction, a one-decile increase
in News CoverageIT, varying from the ninth decile to the peak, would decrease insiders Alpha from
zero to a negative 5.1 basis points (which is nevertheless indistinguishable from zero). Insiders
profits gradually increase to a peak of 2.2% for the decile with the least news coverage. These
findings are consistent with our disciplining hypothesis, and they imply that media coverage reduces
insiders profits, instead of magnifying their trading losses.

5.2. IS THE DISCIPLINING EFFECT OF NEWS COVERAGE PURELY DRIVEN BY

INFORMATION DISSEMINATION?
As a corollary to its information dissemination role, the media can add value to regulatory
information by contributing editorial content based on original investigations and analyses (Miller

18

See Williams [2012] for a detailed explanation of the marginal effects at the means (MEM) analysis, which captures
the predicted value of the dependent variable in response to a particular explanatory variable, when the effects of all other
explanatory variables in the model are held constant at the sample means.
17

[2006]). To further ascertain whether the disciplining effect of news coverage operates through
information dissemination, we first regress Alpha on Adjusted News CoverageIT, which is determined
by News CoverageIT minus the number of Form 4 filings (Filing Frequency). We present the results in
Table 7. We find that both Adjusted News CoverageIT and Filing Frequency reduce the profitability of
insider trades in Models (1) and (2). However, in Model (3), when both variables are included in the
same regression, only Adjusted News CoverageIT retains statistical significance, implying that the
news disciplining effect operates through the dissemination of regulatory filings.
Further, since RavenPack provides additional information for news originality in novelty
scores, we can observe whether a story is a breaking news item (First News Coverage) or a repeated
news article (Repeated News CoverageIT). From Models (4) to (6), we find that only Repeated News
CoverageIT has an effect in attenuating insiders profits.19
Based on the findings in this subsection, we conclude that news coverage reduces insiders
trading profits through the medias news dissemination role rather than through its information
creation role, adding value by broadening the dissemination of insider trading regulatory filings
through replication.

5.3. DOES NEWS COVERAGE HAVE A DETERRENT EFFECT ON INSIDER TRADES?

We next investigate whether news coverage affects the intensity and timing of insiders
trading, documenting a change in insiders behavior to complement our inferences based on trading
profits. First, we estimate two firm-level measures of abnormal insider trading, Trade VolumeAbn and
Trade SizeAbn. Trade VolumeAbn (Trade SizeAbn) is defined as insiders transaction volume in shares
(transaction size in dollars) in year t, adjusted by transaction volume (transaction size) in year t-1. In
Models (1) and (2) of Table 8, we regress Trade VolumeAbn and Trade SizeAbn in year t, on News

19

In Model (6), the positive sign on First News CoverageIT results from multicollinearity with Repeated News
CoverageIT (the correlation coefficient is 0.88). In untabulated results, we regress Repeated News CoverageIT on First
News CoverageIT to acquire a measure of Residual Repeated CoverageIT. In a model including both First News CoverageIT
and Residual Repeated CoverageIT, we find that the former has a nonsignificant sign and that the coefficient on the latter is
significantly negative.
18

CoverageIT in year t-1. The coefficients on News CoverageIT are negative, implying that media
coverage deters insiders trading activities.
Second, in Models (3) and (4), we focus on the effect of media coverage on the timing of
insiders trading relative to earnings announcements (Huddart, Ke, and Shi [2007], Billings and
Cedergren [2014]). In this way, we can investigate how media coverage affects the timing of the
trades around the release of stock price sensitive information. We construct two firm-level proxies for
the timing of insiders trades, Trade VolumeRatio and Trade SizeRatio. Trade VolumeRatio (Trade SizeRatio)
denotes insiders transaction volume in shares (transaction size in dollars) during the eleven-day
window [-5, 5] around quarterly (annual) earnings announcements, scaled by total transaction volume
(transaction size) in a year. The coefficients on News CoverageIT are negative in both models,
indicating that the execution of insider trades is attenuated around earnings announcements.
These findings together with our main results suggest that the media not only reduces the
profitability of completed trades but also attenuates the execution of transactions.

5.4. ENDOGENEITY TESTS

5.4.1. Instrumental Variable Approach. An alternative interpretation of our findings is that the
media is more likely to disseminate regulatory releases of insider trading activities to the public for
large and high profile firms, which are governed sufficiently well to deter insiders from trading
opportunistically, thus generating an endogeneity problem.20 To address this endogeneity concern, we
conduct a two-stage IV analysis by adopting a firms geographic proximity to a Dow Jones branch as
an exogenous determinant of media coverage. Gurun and Butler [2012] find that a firms media
coverage and the content of such coverage are dependent on the distance between the firm and news
outlets. To the extent that journalists incur higher costs by collecting and analyzing information from
distant firms, we expect firms that are located far from news outlets to receive less news coverage.

20

For example, Miller [2006] finds that the media is more likely to report on accounting fraud in firms with a larger
public following. In Table 3, we also find that larger firms have more coverage on insider trading news.
19

Moreover, a long distance between news outlets and a firm can reduce the medias attention and
interest in following the firm and the activities of the firms insiders. However, no economic intuition
directly links this instrument to insiders profit potential, which, to an extent, supports the exclusion
restriction on the instrument.
We apply three variations of distance as IVs for robustness: (1) geographic proximity rank
(ProximityRank) is the descending decile rank of the minimum distance between the headquarters of a
firm and Dow Jones' offices; (2) geographic proximity dummy (ProximityDummy) is a dummy variable
that equals one if the minimum distance between the headquarters and Dow Jones' offices is within
the 40th percentile of minimum distance values for all firms in the sample and zero otherwise; and (3)
geographic proximity category (ProximityCategory) is a categorical variable that takes the value of two
(one) if the headquarters is located in the same city (state) as one of Dow Jones' offices and zero
otherwise.
We present the results in Panel A of Table 9. In the first stage, all three of the measures for
geographic proximity are positively associated with news coverage of insider trading. In the second
stage, the predicted news coverage (Predicted News CoverageIT) is a significant attenuator of insider
profits. Following Larcker and Rusticus [2010], we reject the null hypothesis of weak instrument with
Kleibergen-Paap Wald F statistics equal to 6.40, 10.07, and 5.52 for the three respective IVs (Stock
and Yogo [2005]).21 In untabulated tests, we find that distance to a media source has virtually no
impact on insiders profits for firms with low news coverage (News CoverageIT = 0 or News
CoverageIT 0.01 at the 10th percentile), which further mitigates concerns regarding the violation of
the exclusion restriction on our IVs. That is, proximity cannot directly affect trade profits without the
existence of news coverage.22

21

We find p-values equal to 0.011, 0.002, and 0.019, and the partial R2 equal to 1.25%, 2.32%, and 1.48% for the
three IVs, respectively, which are significantly different from zero.
22
We repeat the analysis by using the educated population in the state where firm is located as an alternative IV based
on data from the U.S. Census Bureau. Our findings remain unaffected. The results even hold when we include both the
proximity and the education IVs in the first stage.
20

5.4.2. Natural Experiment. Dow Jones formerly created a product focused on covering news
about insider trading filings in January 2004. Since Dow Jones is one of the dominant players in the
financial news business, its formal initiation of coverage on Form 4 filings should represent an
exogenously positive shift in the news coverage of insider trading.
In untabulated analysis, we indeed find an increase in the cross-sectional variation of news
coverage on insider trading after Dow Joness formal initiation of such coverage: the standard
deviation of News CoverageIT increases from 0.01 (in 2003) to 0.34 (in 2004). Therefore, we expect
to find a stronger media effect in the post-initiation period. This natural experiment provides us an
opportunity to identify a causal mechanism between News CoverageIT and Alpha and further address
any endogeneity concerns.
We report supportive evidence of this conjecture in Panel B of Table 9. In Models (1) to (6),
we regress insider trading profit on our IVs in the subperiods before and after Dow Joness formal
initiation of news coverage on insider trading. The results show that before the exogenous shock
(2001-2003), the impact of geographic distance on trading profits is nonsignificant and that it
becomes significantly negative in the post-initiation period (2004-2007) for the second and third IVs.
These results support the validity of our natural experiment, showing that the indirect impact of
proximity on trading profits is mediated through news coverage after the exogenous shock. In Models
(7) and (8), we perform our analysis over two subperiods. Prior to the exogenous shift in coverage,
the relation between News CoverageIT and Alpha is nonsignificant; however, it becomes significant
and negative after the initiation of news coverage. Our findings further hold when we drop the year
2004 from the post-initiation period.
If Dow Jones endogenously covers well-governed firms after the initiation of news coverage
on insider trading, we should not obtain significant coefficients for the predicted news coverage when
we use geographic proximity in our IV analysis. Therefore, taking the results for the IV analysis and

21

the natural experiment together, we find evidence supporting a causal effect of news coverage on
insiders trading profits.

6. Conclusion
The governance role of the media has received considerable attention from academic
researchers. However, given that the media has a dual role in reporting corporate business events,
undertaking original investigations and/or rebroadcasting existing news, whether one or both of these
functions play a disciplining role in protecting investors interests remains unclear in the literature.
In this paper, we use the insider trading context as a laboratory to explore the channels through
which news coverage facilitates corporate governance outcomes by regurgitating regulatory
information. We find that the media restricts insiders future trading profits by disseminating
regulatory releases of prior insider trading activities. Further evidence indicates that news coverage
has a disciplining effect on insider trading via three economic mechanisms: news dissemination
reduces information asymmetry between insiders and investors; insiders with litigation risk concerns
react to the media spotlight; and insiders with personal wealth and reputational capital that are tied to
their firm are susceptible to the medias disciplining effect.
Following prior studies such as Bushee et al. [2010], we believe that our work provides
avenues for further research on the real effects of news dissemination. In particular, one promising
direction for future research is to further investigate the economic implications of this effect on other
important corporate decisions that are made by insiders and managers, as well as the associated
outcomes. Such work would contribute to the question of the fundamental benefits of the medias role
in financial markets.

22

APPENDIX
Variable Definitions
Variable

Acronym

Definition

Data Source

A. Insider Trading Variables

Alpha

Alpha

Annualized abnormal daily return based on the four-factor model in a window [1,180] following the transaction.

Thomson Reuters & CRSP

For sales, return is multiplied by -1.

Trade size

Trade Size

Log of transaction size in dollars.

Thomson Reuters

Trade frequency

Trade Frequency

Log of number of insider trades in a window [-360, -1] prior to the transaction.

Thomson Reuters

Filing frequency

Filing Frequency

Number of form filings to SEC in a window [-360, -1] prior to the transaction.

Thomson Reuters

Abnormal trade volume

Trade VolumeAbn

Log transformation of abnormal transaction volume of shares in a year adjusted by transaction volume in last year.

Thomson Reuters

Abnormal trade size

Trade SizeAbn

Log transformation of abnormal transaction size in dollars in a year adjusted by transaction size in last year.

Thomson Reuters

Trade volume ratio

Trade VolumeRatio

Insiders' transaction volume during eleven-day earnings announcement window [-5, 5] scaled by total volume in a year.

Thomson Reuters

Trade size ratio

Trade SizeRatio

Insiders' transaction size during eleven-day earnings announcement window [-5, 5] scaled by total transaction size in a year.

Thomson Reuters

News coverage related to insider trading

News CoverageIT

Number of news releases related to insider trading in a window [-360, -1] prior to the transaction scaled by 100.

RavenPack

News coverage not related to insider trading

News CoverageNon-IT

Number of news releases not related to insider trading in a window [-360, -1] prior to the transaction scaled by 100.

RavenPack

News coverage related to a specific insiders

News CoverageSIT

Number of news releases related to a specific insider's transactions based on a window [0,1] around the SEC filing date

RavenPack

B. Media Variables

transactions
News coverage not related to a specific insiders

in a window [-360, -1] prior to the transaction scaled by 100.

News CoverageNon-SIT

transactions

Number of news releases not related to a specific insider's transactions based on a window [0,1] around the SEC filing date

RavenPack

in a window [-360, -1] prior to the transaction scaled by 100.

Adjusted news coverage related to insider trading

Adjusted News CoverageIT

Number of news releases minus number of form filings in a window [-360, -1] prior to the transaction scaled by 100.

RavenPack

Repeated news coverage related to insider trading

Repeated News CoverageIT

Number of repeated news releases related to insider trading in a window [-360, -1] prior to the transaction scaled by 100.

RavenPack

First news coverage related to insider trading

First News CoverageIT

Number of the first news releases related to insider trading in a window [-360, -1] prior to the transaction scaled by 100.

RavenPack

23

APPENDIX
Variable Definitions
Variable

Acronym

Definition

Data Source

C. Firm and Stock Characteristics

Firm size

Size

Log of market capitalization prior to the transaction.

CRSP

Market-to-book ratio

MB

Market to book equity ratio prior to the transaction.

Compustat & CRSP

Annual stock return

Return

Market-adjusted stock returns in a window [-360, -1] prior to the transaction.

CRSP

Stock return volatility

STD

Standard deviation of daily stock returns in a window [-360, -1] prior to the transaction.

CRSP

Research & development

R&D

Dummy variable that equals one if there are positive R&D expenses.

Compustat

Return-on-asset ratio

ROA

Ratio of net income before extraordinary items to total assets.

Compustat

S&P 500 index membership

S&P 500

Dummy variable that equals one if a firm is included in the S&P 500 index.

Compustat

Geographic proximity rank

ProximityRank

Descending decile rank of the minimum distance between the firms headquarter and Dow Jones' offices.

Dow Jones' website

Geographic proximity dummy

ProximityDummy

Dummy variable that equals one if the minimum distance between the headquarter of a firm and Dow Jones' offices

Dow Jones' website

D. Other Variables

is lower than the 40th percentile of minimum distance values for firms in the sample.
Geographic proximity category

ProximityCategory

Categorical variable that equals two (one) if the headquarter of a firm is located in the same city (state) as one of Dow

Dow Jones' website

Big N auditors

Big N

Dummy variable that equals one if the firm is audited by a Big N auditor.

Audit Analytics

Analyst forecast dispersion

Analyst Forecast Dispersion

Standard deviation of analyst forecasts scaled by stock price.

IBES

Litigation risk

LR

Kim and Skinner's [2012] litigation risk measure.

Compustat & CRSP

CEO's equity compensation

CEO Equity Compensation

Log of amount of the CEO's total equity compensation.

BoardEx

Executives' equity compensation

Executive Equity Compensation

Log of average amount of executives' total equity compensation.

BoardEx

Corporate social responsibility 1

Corporate Social Responsibility1

Dummy variable that equals one if the number of CSR strengths is greater than that of CSR concerns; CSR is based

KLD Research and

on six areas: community, diversity, employee relations, environment, human rights, and product.

Analytics

Corporate social responsibility 2

Corporate Social Responsibility2

Dummy variable that equals one if the number of CSR strengths is greater than that of CSR concerns; CSR is based

KLD Research and

on seven areas: corporate governance, community, diversity, employee relations, environment, human rights, and product.

Analytics

Jones's offices, otherwise zero.

24

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TABLE 1
Summary Statistics
Variable
Alpha
News CoverageIT
News CoverageNon-IT
Size
MB
Return
STD
R&D
Trade Size
Trade Frequency

NObs
1,376,567
1,376,567
1,376,567
1,376,567
1,376,567
1,376,567
1,376,567
1,376,567
1,376,567
1,376,567

Panel A: Summary Statistics

Mean
STD
P10
0.006
0.971
1.097
7.479
5.123
0.268
0.028
0.580
10.213
4.943

0.544
2.031
1.425
1.846
5.505
0.640
0.013
0.494
1.806
2.054

29

-0.641
0.010
0.270
5.260
1.230
-0.299
0.015
0.000
8.035
2.398

Q1

Median

Q3

P90

-0.303
0.120
0.410
6.246
1.948
-0.097
0.019
0.000
8.845
3.526

-0.010
0.350
0.640
7.295
3.288
0.117
0.026
1.000
10.046
4.890

0.291
0.830
1.110
8.585
5.962
0.441
0.034
1.000
11.422
6.252

0.667
2.080
2.310
10.053
10.869
0.949
0.045
1.000
12.715
7.707

TABLE 1 Continued

Variable

Panel B: Correlation Coefficients (Spearman for the upper-right part, highlighted; Pearson for the bottom-left part)
News
News
Alpha
CoverageIT
CoverageNon-IT
Size
MB
Return
STD
R&D
Trade Size

Alpha
News CoverageIT
News CoverageNon-IT
Size
MB
Return
STD
R&D
Trade Size
Trade Frequency

-0.095
-0.066
-0.090
-0.008
0.051
0.064
0.005
-0.017
-0.071

-0.092
0.327
0.364
0.366
0.177
-0.072
0.173
0.040
0.569

-0.099
0.407
0.696
0.074
-0.052
-0.249
0.076
0.275
0.257

-0.095
0.395
0.777
0.179
0.017
-0.440
0.009
0.402
0.376

-0.018
0.272
0.181
0.299
0.343
0.091
0.266
0.046
0.285

0.017
0.112
0.005
0.107
0.399
0.255
0.113
0.028
0.141

0.050
-0.136
-0.316
-0.476
0.078
0.142
0.173
-0.166
-0.120

0.006
0.126
0.025
-0.016
0.365
0.102
0.204
-0.025
0.175

-0.016
0.027
0.270
0.384
0.120
0.071
-0.203
-0.031
-0.130

Trade
Frequency
-0.082
0.626
0.324
0.352
0.347
0.176
-0.068
0.170
-0.147
-

This table presents the summary statistics and Spearman (Pearson) correlation coefficients of the main variables used in this study based on the main sample of insider trades.
The variables are alpha (Alpha), news coverage related to insider trading (News CoverageIT), news coverage not related to insider trading (News CoverageNon-IT), firm size
(Size), market-to-book ratio (MB), annual stock return (Return), stock return volatility (STD), research & development (R&D), trade size (Trade Size), and trade frequency
(Trade Frequency). The construction of these variables is detailed in the Appendix. Panel A reports the number of observations (NObs), mean, median, standard deviation
(STD), and the decile (90% and 10%) and quartile (75% and 25%) distribution of the variables. Panel B reports the correlation coefficients among the variables above, where
the upper-right part (bottom-left part) of the table refers to the Spearman (Pearson) correlation matrix. The sample period is between January 2001 and June 2012 based on
insider trade dates.

30

TABLE 2
Time-variation in News Coverage
Panel A: News Coverage by Year and Firm Size
Year

Small

News CoverageIT
Medium

2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

0.127
0.049
0.001
0.251
0.630
0.246
0.544
0.514
0.269
0.347
0.442
0.372

0.240
0.081
0.001
0.510
1.814
0.832
1.105
1.183
0.657
0.765
0.631
0.626

Large
0.437
0.082
0.018
0.349
3.425
3.087
1.473
1.887
0.662
1.388
0.945
0.841

Small

News CoverageNon-IT
Medium

Large

0.235
0.308
0.345
0.398
0.427
0.468
0.477
0.486
0.404
0.397
0.349
0.392

0.365
0.472
0.493
0.558
0.851
0.795
0.712
0.725
0.631
0.717
0.572
0.616

1.144
1.121
1.386
1.759
2.454
2.672
2.278
2.460
1.989
2.650
1.813
1.875

Panel B: News Coverage around SEC Filings

Date

News CoverageIT

First News CoverageIT

Repeated News CoverageIT

News CoverageNon-IT

-5
0.243
0.126
0.117
0.271
-4
0.209
0.112
0.097
0.205
-3
0.189
0.103
0.086
0.206
-2
0.222
0.124
0.098
0.218
-1
0.278
0.149
0.129
0.253
0
1.172
0.748
0.425
0.270
1
0.435
0.200
0.235
0.214
2
0.301
0.165
0.137
0.153
3
0.233
0.132
0.101
0.139
4
0.215
0.126
0.090
0.139
5
0.225
0.133
0.092
0.163
This table presents time-variation in news coverage by year or around SEC filings. Panel A shows the distribution of news
coverage variables by year and firm size. The sample firms are classified into three groups by market capitalization: small,
medium, and large. Panel B shows time-series variation of news coverage around SEC filings. The window is specified
five days before and after SEC filings. The news coverage variables include news coverage not related to insider trading
(News CoverageNon-IT), news coverage related to insider trading (News CoverageIT), first news coverage related to insider
trading (First News CoverageIT), repeated news coverage related to insider trading (Repeated News CoverageIT), and filing
frequency (Filing Frequency). Values on the date of SEC filings are highlighted in bold. The sample period is between
January 2001 and June 2012 based on insider trade dates.

31

TABLE 3
Determinants of News Coverage

Variable
Trade Frequency
Size
MB
Return
STD
R&D
ROA
S&P 500
Fixed Effects
Obs

News CoverageIT
Model
(1)

News CoverageNon-IT
Model
(2)

0.050
(43.01)
0.027
(22.40)
0.000
(0.65)
0.009
(4.70)
0.007
(0.09)
0.024
(4.04)
0.022
(2.84)
0.004
(0.47)
IY
40,130

0.003
(0.99)
0.177
(31.96)
-0.011
(-6.18)
-0.039
(-8.81)
4.495
(15.35)
0.037
(1.96)
-0.106
(-4.06)
0.963
(22.77)
IY
40,130

R2Adj
40.2%
57.2%
This table presents a regression of news coverage related to insider trading (News CoverageIT) in Model (1) and news
coverage not related to insider trading (News CoverageNon-IT) in Model (2) on firm-level characteristics as well as
unreported industry- and year-fixed effects (IY). The prior year firm-level characteristics include trade frequency (Trade
Frequency), firm size (Size), market-to-book ratio (MB), annual stock return (Return), stock return volatility (STD),
research & development (R&D), return-on-asset ratio (ROA), and S&P 500 index membership (S&P 500). The
construction of these variables is detailed in the Appendix. The t-statistics shown in parentheses are based on standard
errors adjusted for heteroskedasticity and firm-level clustering. Obs denotes the number of firm-year observations, and
R2Adj is adjusted R2. The sample period is from 2000 to 2011 based on news release dates (one year lagged to the main
sample of insider trades).

32

TABLE 4
News Coverage and Insiders Trading Profits

Variable
News CoverageIT
News CoverageNon-IT

Model
(1)

Model
(2)

Model
(3)

0.004
(0.68)

-0.017
(-4.10)
0.007
(1.24)

-0.017
(-3.89)

News CoverageSIT

Ex EA
Model
(4)

Firm Fixed
Model
(5)

-0.015
(-3.84)

-0.019
(-2.50)

Model
(6)

-0.023
(-2.12)

Model
(7)

-0.023
(-1.94)
News CoverageNon-SIT
-0.004
(-0.69)
-0.017
0.253
Size
-0.017
-0.022
-0.021
-0.019
-0.017
(-2.62)
(10.51)
(-2.87)
(-3.28)
(-3.29)
(-3.21)
(-2.61)
0.001
0.003
MB
0.001
0.000
0.001
0.001
0.001
(0.41)
(0.86)
(0.52)
(0.00)
(0.61)
(0.45)
(0.44)
0.056
0.011
Return
0.049
0.047
0.050
0.046
0.046
(1.98)
(0.61)
(1.92)
(1.82)
(1.99)
(1.77)
(1.78)
0.298
2.290
STD
0.433
0.322
0.349
0.388
0.442
(0.29)
(2.66)
(0.47)
(0.34)
(0.37)
(0.42)
(0.48)
0.020
-0.153
R&D
0.010
0.005
0.009
0.007
0.009
(0.93)
(-0.56)
(0.53)
(0.24)
(0.47)
(0.38)
(0.45)
0.001
-0.002
Trade Size
0.001
0.001
0.001
0.000
0.000
(0.22)
(-1.40)
(0.42)
(0.23)
(0.44)
(0.12)
(0.17)
0.002
0.017
Trade Frequency
-0.000
-0.007
0.000
-0.002
-0.001
(0.20)
(2.92)
(-0.01)
(-0.87)
(0.04)
(-0.25)
(-0.19)
IY
FY
Fixed Effects
IY
IY
IY
IY
IY
978,435
1,376,567
Obs
1,376,567 1,376,567 1,376,567
1,376,567 1,376,567
3.6%
27.3%
R2Adj
3.1%
2.9%
3.1%
3.0%
3.0%
This table presents a regression of insiders trading profits measured by alpha (Alpha) on news coverage related to insider
trading (News CoverageIT), news coverage not related to insider trading (News CoverageNon-IT), as well as firm-level
control variables and unreported industry- and year-fixed effects (IY). The firm-level control variables include firm size
(Size), market-to-book ratio (MB), annual stock return (Return), stock return volatility (STD), research & development
(R&D), trade size (Trade Size), and trade frequency (Trade Frequency). The construction of these variables is detailed in
the Appendix. Model (4) is based on a subsample of insiders trades with no earnings announcements in a window ten
days [-10, 10] before and after insiders trades. Model (5) uses the change in news coverage from year t-1 to year t as the
regressor (if news coverage dataset is not available in year t-1, we use the average news coverage among all the firms in
year t instead) and controls for firm- and year-fixed effects (FY). Models (6) and (7) present a panel regression of Alpha
on news coverage related to a specific insiders transactions (News CoverageSIT) and news coverage not related to a
specific insiders transactions (News CoverageNon-SIT). Key results are highlighted in bold. The t-statistics shown in
parentheses are based on standard errors adjusted for heteroskedasticity and firm-level clustering. Obs denotes the number
of transaction observations, and R2Adj is adjusted R2. The sample period is between January 2001 and June 2012 based on
insider trade dates.

33

TABLE 5
Economic Mechanisms

Variable

Panel A: Information Asymmetry Channel

Analyst Forecast Dispersion
Model
(1)

News CoverageITIA
News CoverageIT
IA
Size
MB
Return
STD
R&D
Trade Size
Trade Frequency
Fixed Effects
Obs
R2Adj

34

Big N
Model
(2)

-7.737
(-4.60)

0.080
(3.25)

-0.011
(-2.93)
3.252
(1.44)
-0.018
(-2.61)
0.000
(0.19)
0.059
(1.87)
0.065
(0.06)
0.012
(0.47)
-0.000
(-0.04)
0.004
(0.62)
IY
1,173,814

-0.095
(-4.16)
0.011
(0.50)
-0.018
(-2.90)
0.001
(0.31)
0.050
(2.00)
0.681
(0.77)
0.014
(0.71)
0.001
(0.57)
0.001
(0.17)
IY
1,376,567

4.0%

3.6%

TABLE 5 Continued

LR
Variable
News CoverageITLR
LR
News CoverageIT
Size
MB
Return
STD
R&D
Trade Size
Trade Frequency
Fixed Effects
Obs
R2Adj

Model
(1)

Panel B: Litigation Risk Channel

Senior
Sales
Purchases
Officers
Model
Model
Model
(2)
(3)
(4)

Non-senior
Officers
Model
(5)

Inside
Directors
Model
(6)

Outside
Directors
Model
(7)

-0.680
(-2.14)
0.296
(0.83)
0.003
(0.26)
-0.007
(-0.98)
0.002
(0.61)
0.027
(2.01)
1.117
(1.56)
-0.019
(-1.01)
0.000
(0.17)
-0.000
(-0.06)
IY
1,260,880

-0.020
(-4.79)
-0.014
(-2.26)
0.002
(0.87)
0.061
(2.25)
-0.596
(-0.56)
0.006
(0.26)
0.003
(1.03)
0.006
(0.78)
IY
1,239,420

0.037
(1.09)
-0.007
(-1.06)
-0.008
(-3.23)
0.001
(0.04)
4.097
(4.68)
0.008
(0.24)
0.001
(0.19)
-0.016
(-1.47)
IY
137,147

-0.017
(-2.96)
-0.010
(-1.44)
0.001
(0.63)
0.064
(2.15)
0.126
(0.09)
0.014
(0.57)
-0.001
(-0.32)
-0.008
(-0.80)
IY
485,231

-0.017
(-3.44)
-0.011
(-2.05)
-0.001
(-0.43)
0.019
(1.02)
1.102
(1.34)
0.018
(0.72)
-0.001
(-0.53)
0.006
(1.05)
IY
414,367

-0.012
(-1.03)
-0.006
(-0.48)
0.009
(1.82)
-0.023
(-0.75)
1.362
(0.58)
0.048
(0.84)
-0.006
(-0.75)
-0.015
(-1.33)
IY
80,192

0.016
(0.66)
-0.021
(-2.95)
0.000
(0.16)
0.060
(1.87)
0.808
(0.79)
-0.027
(-0.97)
0.002
(0.38)
0.002
(0.27)
IY
396,777

3.3%

3.6%

6.0%

6.3%

2.9%

12.1%

4.7%

35

TABLE 5 Continued

Variable

Panel C: Capital-at-Risk Channel

Equity Capital
Reputational Capital
CEO Equity
Executive Equity
Corporate Social
Corporate Social
Compensation
Compensation
Responsibility1
Responsibility2
Model
Model
Model
Model
(1)
(2)
(3)
(4)

News CoverageITCR

-0.066
-0.055
-0.080
-0.098
(-3.18)
(-2.33)
(-2.62)
(-3.56)
News CoverageIT
0.578
0.481
0.066
0.083
(3.19)
(2.34)
(2.34)
(3.34)
CR
0.032
0.035
0.024
0.024
(2.10)
(2.27)
(1.21)
(1.32)
Size
-0.008
-0.011
-0.001
-0.002
(-0.86)
(-1.10)
(-0.14)
(-0.21)
MB
0.008
0.008
0.004
0.004
(2.09)
(2.19)
(1.06)
(1.10)
Return
0.000
0.001
0.009
0.008
(0.02)
(0.06)
(0.49)
(0.42)
STD
1.385
1.123
1.518
1.458
(1.26)
(1.03)
(1.26)
(1.23)
R&D
-0.042
-0.041
-0.020
-0.015
(-1.50)
(-1.56)
(-0.87)
(-0.67)
Trade Size
0.003
0.003
0.003
0.003
(1.28)
(1.19)
(1.03)
(0.94)
Trade Frequency
-0.010
-0.013
-0.015
-0.016
(-1.63)
(-2.16)
(-2.23)
(-2.39)
Fixed Effects
IY
IY
IY
IY
Obs
521,157
557,478
838,216
838,216
R2Adj
6.7%
6.2%
3.6%
4.0%
This table presents a regression of insiders transaction profits measured by alpha (Alpha) on news coverage related to
insider trading (News CoverageIT), its interaction with information asymmetry variables (IA) in Panel A, its interaction
with litigation risk (LR) in Panel B, and its interaction with capital-at-risk variables (CR) in Panel C, as well as firm-level
control variables and unreported industry- and year-fixed effects (IY). The firm-level control variables include firm size
(Size), market-to-book ratio (MB), annual stock return (Return), stock return volatility (STD), research & development
(R&D), trade size (Trade Size), and trade frequency (Trade Frequency). In Panel A, the information asymmetry variables
include analyst forecast dispersion (Analyst Forecast Dispersion) and the Big N auditors (Big N) indicator. In Panel B, we
use Kim and Skinner's (2012) litigation risk measure (LR), and further split insiders transactions based on the types of
trades (sales and purchases) and the classifications of insiders, including senior officers, non-senior officers, executive
insiders, and non-executive insiders. Senior officers are insiders holding roles of CEO, CFO, and/or Chairman. Non-senior
officers are pure officers excluding CEO, CFO and/or Chairman with no director roles. Inside directors are those with both
director and officer roles excluding CEO, CFO and/or Chairman. Outside directors are pure directors excluding Chairman
with no officer roles. In Panel C, capital-at-risk variables include CEO's equity compensation (CEO Equity Compensation),
executives' equity compensation (Executive Equity Compensation), and two measures of corporate social responsibility
(Corporate Social Responsibility1, Corporate Social Responsibility2). The construction of these variables is detailed in the
Appendix. Key results are highlighted in bold. The t-statistics shown in parentheses are based on standard errors adjusted
for heteroskedasticity and firm-level clustering. Obs denotes the number of transaction observations, and R2Adj is adjusted
R2. The sample period is between January 2001 and June 2012 based on insider trade dates.

36

TABLE 6
Decrease in Profits or Increase in Losses
Alpha
News CoverageIT

Mean

Low News CoverageIT

2
3
4
5
6
7
8
9

z-statistics

95% Confidence Interval

0.000
0.022
(2.20)
[0.002
0.042]
0.010
0.022
(2.19)
[0.002
0.041]
0.080
0.020
(2.10)
[0.001
0.040]
0.160
0.019
(1.99)
[0.000
0.038]
0.250
0.017
(1.86)
[-0.002
0.036]
0.350
0.015
(1.71)
[-0.003
0.034]
0.490
0.012
(1.49)
[-0.006
0.031]
0.690
0.008
(1.15)
[-0.010
0.026]
1.030
0.000
(0.54)
[-0.019
0.018]
2.080
-0.051
(-1.25)
[-0.085
-0.018]
High News CoverageIT
This table presents the results of marginal effects at the means analysis of the relationship between expected insiders
trading profits measured by alpha (Alpha) and news coverage related to insider trading (News CoverageIT). Conditional on
means of firm-level control variables as well as unreported industry- and year-fixed effects, we report the expected
insiders trading profits estimated based on the decile-ranking values of News CoverageIT. The firm-level control variables
include firm size (Size), market-to-book ratio (MB), annual stock return (Return), stock return volatility (STD), research &
development (R&D), trade size (Trade Size), and trade frequency (Trade Frequency). The construction of these variables
is detailed in Appendix A. Mean denotes the average value of expected Alpha. The z-statistics shown in parentheses are
based on standard errors of Alpha. 95% confidence interval of Alpha is reported in brackets. The sample period is between
January 2001 and June 2012 based on insider trade dates.

37

TABLE 7
News Dissemination or News Exploration
Variable
Adjusted News CoverageIT
Filing Frequency

Model
(1)

Model
(2)

Model
(3)

-0.056
(-1.65)

-0.014
(-1.76)
-0.034
(-0.76)

-0.018
(-3.70)

Repeated News CoverageIT

Model
(4)

-0.022
(-4.43)

Model
(5)

Model
(6)

-0.039
(-5.03)
First News CoverageIT
-0.004
0.128
(-0.10)
(2.10)
Size
-0.017
-0.019
-0.017
-0.017
-0.019
-0.017
(-2.91)
(-3.06)
(-3.00)
(-2.87)
(-2.93)
(-2.88)
MB
0.001
0.001
0.001
0.001
-0.000
0.001
(0.35)
(0.52)
(0.60)
(0.59)
(-0.02)
(0.45)
Return
0.049
0.046
0.048
0.049
0.047
0.049
(1.93)
(1.76)
(1.88)
(1.94)
(1.78)
(1.96)
STD
0.440
0.363
0.419
0.476
0.368
0.699
(0.48)
(0.39)
(0.45)
(0.52)
(0.40)
(0.80)
R&D
0.009
0.011
0.011
0.010
0.006
0.005
(0.46)
(0.56)
(0.59)
(0.53)
(0.30)
(0.24)
Trade Size
0.001
0.001
0.001
0.001
0.001
0.000
(0.34)
(0.48)
(0.46)
(0.40)
(0.22)
(0.02)
Trade Frequency
-0.002
0.002
0.002
-0.000
-0.006
-0.006
(-0.34)
(0.28)
(0.28)
(-0.01)
(-0.97)
(-0.97)
Fixed Effects
IY
IY
IY
IY
IY
IY
Obs
1,376,567 1,376,567 1,376,567 1,376,567 1,376,567 1,376,567
R2Adj
3.1%
3.0%
3.1%
3.1%
2.9%
3.3%
This table presents results of regressions of insiders trading profits measured by alpha (Alpha) on adjusted news coverage
related to insider trading (Adjusted News CoverageIT), filing frequency (Filing Frequency), repeated news coverage
related to insider trading (Repeated News CoverageIT), first news coverage related to insider trading (First News
CoverageIT), as well as firm-level control variables and unreported industry- and year-fixed effects (IY). The firm-level
control variables include firm size (Size), market-to-book ratio (MB), annual stock return (Return), stock return volatility
(STD), research & development (R&D), trade size (Trade Size), and trade frequency (Trade Frequency). The construction
of these variables is detailed in the Appendix. Key results are highlighted in bold. The t-statistics shown in parentheses are
based on standard errors adjusted for heteroskedasticity and firm-level clustering. Obs denotes the number of transaction
observations, and R2Adj is adjusted R2. The sample period is between January 2001 and June 2012 based on insider trade
dates.

38

TABLE 8
Insiders Propensity and Timing to Trade

Variable

Abnormal Transactions
Trade VolumeAbn
Trade SizeAbn
Model
Model
(1)
(2)

News CoverageIT

Earnings Announcement [-5, +5]

Trade VolumeRatio
Trade SizeRatio
Model
Model
(3)
(4)

-4.220
-4.357
-0.024
-0.023
(-17.72)
(-14.45)
(-4.33)
(-4.16)
Size
0.294
0.306
0.009
0.009
(12.19)
(9.84)
(10.63)
(10.76)
MB
-0.004
-0.025
-0.001
-0.001
(-0.31)
(-1.57)
(-2.62)
(-2.84)
Return
-0.270
-0.362
0.002
0.002
(-3.45)
(-3.73)
(1.03)
(0.90)
STD
-2.428
-6.558
-0.145
-0.142
(-1.02)
(-2.17)
(-1.87)
(-1.83)
R&D
0.062
0.160
-0.003
-0.003
(0.51)
(1.02)
(-0.67)
(-0.66)
Trade Frequency
-0.838
-0.927
0.018
0.018
(-33.17)
(-28.72)
(24.86)
(24.61)
Fixed Effects
IY
IY
IY
IY
Obs
37,341
37,341
37,341
37,341
R2Adj
6.3%
5.9%
4.3%
4.3%
This table presents the results of a regression of abnormal insider trading measured by abnormal trade volume (Trade
VolumeAbn) and abnormal trade size (Trade SizeAbn), and the timing of insider trading measured by trade volume ratio
(Trade VolumeRatio) and trade size ratio (Trade SizeRatio) on news coverage related to insider trading (News CoverageIT), as
well as firm-level control variables and unreported industry- and year-fixed effects (IY). The firm-level control variables
include firm size (Size), market-to-book ratio (MB), annual stock return (Return), stock return volatility (STD), research &
development (R&D), and trade frequency (Trade Frequency). The construction of these variables is detailed in the
Appendix. Key results are highlighted in bold. The t-statistics shown in parentheses are based on standard errors adjusted
for heteroskedasticity and firm-level clustering. Obs denotes the number of transaction observations, and R2Adj is adjusted
R2. The sample period is 2001 to 2011 based on insider trade dates, where the year 2012 is dropped because our main
sample of insider trades ends in June 2012.

39

TABLE 9
Endogeneity Tests

Variable
ProximityRank

Panel A: An Instrumental Variable Approach

News CoverageIT
Alpha
News CoverageIT
Stage 1
Stage 2
Stage 1
Model
Model
Model
(1)
(2)
(3)

Alpha
Stage 2
Model
(4)

0.509
(3.17)

ProximityCategory

0.288
(2.35)

Predicted News CoverageIT

MB
Return
STD
R&D
Trade Size
Trade Frequency
Fixed Effects
Obs
R2Adj

Alpha
Stage 2
Model
(6)

0.639
(2.53)

ProximityDummy

Size

News CoverageIT
Stage 1
Model
(5)

0.148
(1.49)
0.063
(2.46)
0.158
(1.34)
2.979
(0.88)
0.268
(2.18)
0.033
(1.45)
0.386
(5.32)
IY
1,363,540

-0.099
(-2.05)
-0.003
(-0.26)
0.006
(1.44)
0.061
(2.45)
0.759
(0.81)
0.035
(1.31)
0.003
(1.00)
0.032
(1.53)
IY
1,363,540

48.8%

3.0%

40

0.140
(1.52)
0.063
(2.42)
0.156
(1.29)
2.301
(0.72)
0.286
(2.34)
0.032
(1.31)
0.385
(5.64)
IY
1,363,540

-0.080
(-2.11)
-0.006
(-0.76)
0.005
(1.53)
0.058
(2.41)
0.690
(0.74)
0.030
(1.25)
0.003
(0.98)
0.024
(1.59)
IY
1,363,540

0.150
(1.51)
0.061
(2.50)
0.156
(1.33)
2.737
(0.77)
0.293
(2.43)
0.031
(1.35)
0.388
(5.37)
IY
1,363,540

-0.107
(-2.29)
-0.002
(-0.14)
0.007
(1.61)
0.062
(2.45)
0.786
(0.80)
0.038
(1.40)
0.003
(1.09)
0.035
(1.60)
IY
1,363,540

49.3%

3.0%

48.9%

3.0%

TABLE 9 Continued
Panel B: A Natural Experiment with Dow Jones Formal Coverage of Insider Trading Filings

Variable
ProximityRank

2001-2003

2004-2007

2001-2003

2004-2007

2001-2003

2004-2007

2001-2003

2004-2007

Model

Model

Model

Model

Model

Model

Model

Model

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

-0.025

-0.070

(-0.42)

(-1.35)

ProximityDummy

-0.010

-0.048

(-0.31)

(-1.67)

ProximityCategory

-0.006

-0.045

(-0.22)

(-1.89)

News CoverageIT

0.022

-0.022

(0.30)

(-3.69)

Difference

-0.045

-0.038

-0.039

-0.044

[P-value]

[0.42]

[0.22]

[0.10]

[0.09]

Size
MB
Return
STD
R&D
Trade Size
Trade Frequency
Fixed Effects

-0.008

-0.014

-0.008

-0.013

-0.008

-0.014

-0.008

-0.013

(-0.76)

(-1.39)

(-0.75)

(-1.39)

(-0.74)

(-1.38)

(-0.73)

(-1.41)

0.000

0.002

0.000

0.002

0.000

0.002

0.000

0.003

(0.09)

(0.64)

(0.10)

(0.61)

(0.10)

(0.81)

(0.12)

(1.26)

-0.008

0.069

-0.008

0.069

-0.008

0.068

-0.007

0.076

(-0.33)

(1.53)

(-0.33)

(1.53)

(-0.33)

(1.54)

(-0.28)

(1.77)

-0.862

0.225

-0.878

0.342

-0.878

0.437

-1.016

0.022

(-0.74)

(0.13)

(-0.76)

(0.19)

(-0.74)

(0.25)

(-0.88)

(0.01)

-0.009

0.010

-0.010

0.008

-0.010

0.006

-0.012

0.014

(-0.18)

(0.38)

(-0.20)

(0.30)

(-0.20)

(0.21)

(-0.25)

(0.51)

-0.003

0.001

-0.003

0.002

-0.003

0.001

-0.004

0.004

(-0.46)

(0.33)

(-0.46)

(0.40)

(-0.47)

(0.32)

(-0.56)

(1.06)

0.006

-0.015

0.006

-0.015

0.006

-0.015

0.006

-0.006

(0.53)

(-1.67)

(0.52)

(-1.65)

(0.53)

(-1.63)

(0.47)

(-0.61)

IY

IY

IY

IY

IY

IY

IY

IY

Obs

164,443

741,779

164,443

741,779

164,443

741,779

165,162

747,895

R2Adj

4.9%

4.2%

4.9%

4.2%

4.9%

4.4%

4.8%

4.6%

This table provides tests to address endogeneity issues. Panel A presents regression results of an instrumental variable
approach. In Models (1), (3), and (5), news coverage related to insider trading (News CoverageIT) is predicted by the
instrumental variables, respectively geographic proximity rank (ProximityRank), geographic proximity dummy
(ProximityDummy), and geographic proximity category (ProximityCategory), and firm-level control variables as well as
unreported industry- and year-fixed effects (IY). In Models (2), (4), and (6), insider trading profit measured by alpha
(Alpha) is regressed on the predicted news coverage related to insider trading (Predicted News CoverageIT). The firm-level
control variables include firm size (Size), market-to-book ratio (MB), annual stock return (Return), stock return volatility
(STD), research & development (R&D), trade size (Trade Size), and trade frequency (Trade Frequency). The construction
of these variables is detailed in the Appendix. Panel B explores a natural experiment based on the date when Dow Jones
formally initiated coverage of insider trading filings - January 2004. The period preceding systematic coverage is 20012003 in Models (1), (3), (5), and (7). The period of systematic coverage is 2004-2007 in Models (2), (4), (6), and (8). Key
results are highlighted in bold. The t-statistics shown in parentheses are based on standard errors adjusted for
heteroskedasticity and firm-level clustering. Obs denotes the number of transaction observations, and R2Adj is adjusted R2.
The sample period is between January 2001 and June 2012 based on insider trade dates.

41

Internet Appendix of Additional Tables for

The Governance Effect of the Medias News Dissemination Role:

Evidence from Insider Trading

This appendix provides institutional details on the regulatory reporting of insider

trades and supplemental analyses to the main results presented in The Governance Effect of
the Medias News Dissemination Role: Evidence from Insider Trading. We summarize the
content of the appendix on the next page. Each page number in parentheses is in relation to
the position in the paper where the relevant content is cross-referenced.

Internet Appendix, Page1

CONTENT OF THE INTERNET APPENDIX

1. Definition Table: Definitions of Variables Used in the Internet Appendix Only.

2. U.S. Insider Reporting Requirements: The Regulation of Insiders Trades (Page 1).
3. Discussion on Robustness Tests (Page 14).
4. Table IA1: Alternative Specifications (Page 14).
5. Table IA2: Falsification Test on Stale News (Page 14).
6. Table IA3: Value Impact and Timeliness of News (Page 14).
7. Table IA4: Routine and Non-routine Transactions (Page 14).
8. Table IA5: SEC Investigation and Litigation Defendant (Page 16).

Internet Appendix, Page2

DEFINITION TABLE
Variable

Acronym

Definition

Data Source

SEC investigation indicator

SEC Investigation

Dummy variable that equals one if the firm is investigated by the SEC in a year.

RavenPack

Litigation indicator

Litigation Defendant

Dummy variable that equals one if the firm is sued for legal, insider trading, and/or fraud issues in a year.

RavenPack

Firm-level alpha

AlphaFirm

Average firm-level abnormal return for the transactions made by all the insiders of the firm in a year.

Thomson Reuters & CRSP

Market-adjusted return

ReturnADJ
AlphaIndex

Buy and hold market adjusted return in a window [1, 180] following the transaction. For sales, return is multiplied by -1.
Annualized abnormal daily return based on Cremers, Petajisto, and Zitzewitzs [2013] index-based four-factor model in

Thomson Reuters & CRSP

Index-based alpha
Three-month alpha

Alpha90

Thomson Reuters & CRSP

a window [1, 180] following the transaction. For sales, return is multiplied by -1.
Annualized abnormal daily return based on the four-factor model in a window [1, 90] following the transaction.

Thomson Reuters & CRSP

For sales, return is multiplied by -1.

Trade volume

Trade Volume

Number of shares in a transaction.

Thomson Reuters

Trade price
News coverage related to insider trading over the

Trade Price
News CoverageIT [-2Y,0]

Stock trade price in dollars.

Number of news releases related to insider trading in a window [-720, -1] prior to the transaction scaled by 100.

Thomson Reuters
RavenPack

News CoverageIT [-3Y,0]

Number of news releases related to insider trading in a window [-1080, -1] prior to the transaction scaled by 100.

RavenPack

News CoverageIT [-2Y,-1Y]

Number of news releases related to insider trading in a window [-720, -361] prior to the transaction scaled by 100.

RavenPack

News CoverageIT [-3Y,-2Y]

Number of news releases related to insider trading in a window [-1080, -721] prior to the transaction scaled by 100.

RavenPack

High impact news coverage related to insider trading

High Impact News CoverageIT

Number of high impact news releases related to insider trading scaled by 100.

RavenPack

Low impact news coverage related to insider trading

Low Impact News CoverageIT

Number of low impact news releases related to insider trading scaled by 100.

RavenPack

Recent news coverage related to insider trading

Recent News CoverageIT

Number of news releases related to insider trading in a window [-180, -1] prior to the transaction scaled by 100.

RavenPack

Old news coverage related to insider trading

Old News CoverageIT

Number of news releases related to insider trading in a window [-360, -181] prior to the transaction scaled by 100.

RavenPack

Insider trades made by routine traders

Routine Trade

Insider trades made by routine traders, who trade in the same month over the previous three years.

Thomson Reuters

Insider trades made by non-routine traders

Non-Routine Trade

Insider trades made by non-routine traders, who are not identified as routine traders.

Thomson Reuters

last two years

News coverage related to insider trading over the
last three years
News coverage related to insider trading within
the second last year
News coverage related to insider trading within
the third last year

Internet Appendix, Page3

U.S. INSIDER REPORTING REQUIREMENTS

The requirement that insiders in the U.S. must report specific details of each of their
trades dates back to the Securities and Exchange Act (the Act) of 1934, under which the
SEC promulgated Rule 10b-5. This regulation requires that certain persons possessing
material non-public information regarding a firm disclose that information or abstain from
trading. The U.S. Supreme Court clarified that the rule applies to the firms insiders (its
officers and directors) as well as its controlling shareholders.
Thereafter, with the promulgation of the Sarbanes-Oxley Act of 2002, the SEC
adopted new rules and shortened the window for most SEC filings of insider trading
information to two business days after a buy or sell transaction. Prior to this change, the
reporting period typically lasted until the 10th day of the month after insiders trades.
Corporate insiders are required by the SEC to file a statement of ownership regarding the
firms securities they hold.
Changes in ownership are reported to the SEC and must be reported by filing Form 4
within two business days. Form 5 is used to update the SEC on transactions that should have
been reported earlier on a Form 4 or were eligible for deferred reporting. Since June 30, 2003,
the SEC has required insiders to submit filings electronically through its EDGAR system.
Prior to this date, electronic submission was optional. Because the EDGAR system is readily
searchable, information on insiders trades is now easily available to investors, the media, and
specialist third-party vendors of insider trading data and analytics.
Also of relevance to our empirical design, Section 16 (b) of the Securities Exchange
Act of 1934 prohibits insiders and persons owning more than 10% of the firm from making
short-swing profits or buying and selling stock within a six-month period with a sale price
that is higher than the purchase price.

Internet Appendix, Page4

ROBUSTNESS TESTS

1. Alternative Specifications
In Table IA1, we run robustness tests with varying dependent variables in Models (1)
to (4) using market-adjusted returns (ReturnADJ), index-based alpha (AlphaIndex), three-month
alpha (Alpha90), and the product of trade size and alpha (Trade SizeAlpha). We cluster
standard errors by year in Model (5), by industry in Model (6), by insider in Model (7), and
by firm and year in Model (8). In Models (9) to (11), we utilize alternative samples by
excluding trivial trades, using as cut-off points trade price (ten dollars), trade volume (1,000
shares), or trade size (10,000 dollars). Our results survive in all of these specifications.

2. Falsification Test on Stale News

We conjecture that stale news released beyond a one-year window prior to the insider
transaction should not significantly affect the insiders future trading profit. Our analysis
presented in Table IA2 serves as a falsification test for our main findings, and supports this
argument. When we repeat our baseline analysis after we include alternatives of News
CoverageIT estimated in year t-2 and t-3 preceding an insider transaction, we find that only
news coverage within the last year remains significant. Furthermore, if we aggregate all the
news coverage over a combined period of three years, the coefficient on this aggregated
measure loses its significance altogether, whereas for a two-year aggregation period, the
coefficient is only significant at the 10% level.

3. News Impact and News Recency

In Table IA3, we explore the issue of news impact and news recency by decomposing
news regarding insiders trades according to the impact and timeliness of the news. We use
RavenPacks news impact projection (NIP) score as a proxy for prominent news coverage.

Internet Appendix, Page5

The score is a measure of confidence that the story will have a value impact on the market
over the two-hour period following its release, and is given a value between zero and 100.
We define High Impact News CoverageIT (Low Impact News CoverageIT) as the number of
relevant news releases with NIP equal to or greater than (below) the mean NIP in the sample
(equal to 40). To measure the time relevance of specific news related to insider trading, we
define Recent News CoverageIT as news articles published within 180 days of the insider
transaction. The results suggest that high impact and recent news coverage plays an important
role in attenuating insiders profits.

4. Routine versus Non-routine Traders

Cohen, Malloy, and Pomorski [2012] find that routine insider trades that are executed
at regular time intervals are less informative than non-routine transactions that follow no
discernible timing patterns. In Table IA4, we define routine traders as those reporting insider
transactions executed in the same month over the previous three years and the remainder as
non-routine traders, and split the sample between these two types of insiders. We expect news
coverage to be effective as a disciplining tool against opportunistic trades made by nonroutine traders, since trades executed by them are more likely to be informative and they are
more exposed to legal risk. The findings support our conjecture.

5. Other Disciplining Mechanisms

In untabulated tests, available from the authors upon request, we add other
governance factors, including institutional ownership, analyst coverage, Big N auditor, board
independence, and CEO-Chairman duality into our analysis. The results show that none of
these alternative monitoring mechanisms subsumes the disciplining effect of news coverage.

Internet Appendix, Page6

REFERENCES USED IN THE INTERNET APPENDIX

Cohen, L.; C. J. Malloy; and L. Pomorski. Decoding Inside Information. Journal of

Finance 67 (2012): 10091043.
Cremers, M.; A. Petajisto; and E. Zitzewitz. Should Benchmark Indices Have Alpha?
Revisiting Performance Evaluation. Critical Finance Review 2 (2013): 148.

Internet Appendix, Page7

TABLE IA1
Alternative Specifications
Alternative measures of insiders' trading profits

Variable
News CoverageIT
Size
MB
Return
STD
R&D
Trade Size
Trade Frequency
Fixed Effects
Obs
R2Adj

Alternative clustering methods

Alternative samples

ReturnADJ

AlphaIndex

Alpha90

Trade SizeAlpha

CYear

CIndustry

CInsider

CFirmYear

Trade Price$10

Trade Volume1,000

Trade Size$10,000

Model
(1)

Model
(2)

Model
(3)

Model
(4)

Model
(5)

Model
(6)

Model
(7)

Model
(8)

Model
(9)

Model
(10)

Model
(11)

-0.007
(-3.73)
-0.003
(-0.85)
0.000
(0.46)
0.027
(2.61)
1.048
(2.38)
-0.006
(-0.58)
0.001
(0.96)
0.002
(0.58)
IY
1,376,567
3.3%

-0.017
(-3.56)
-0.019
(-3.13)
0.001
(0.50)
0.051
(2.06)
-0.048
(-0.05)
0.003
(0.16)
0.002
(0.65)
0.002
(0.34)
IY
1,268,228
3.2%

-0.015
(-2.93)
-0.018
(-2.66)
0.001
(0.32)
0.038
(1.40)
0.597
(0.52)
-0.007
(-0.27)
0.002
(0.68)
-0.003
(-0.45)
IY
1,376,567
2.0%

-0.407
(-4.24)
-0.203
(-2.22)
0.012
(0.46)
0.434
(1.55)
5.183
(0.40)
0.088
(0.26)

-0.017
(-3.29)
-0.017
(-1.99)
0.001
(0.29)
0.049
(1.91)
0.433
(0.37)
0.010
(0.68)
0.001
(0.47)
-0.000
(-0.02)
IY
1,376,567
3.1%

-0.017
(-4.99)
-0.017
(-3.12)
0.001
(0.45)
0.049
(1.98)
0.433
(0.59)
0.010
(0.63)
0.001
(0.41)
-0.000
(-0.01)
IY
1,376,567
3.1%

-0.017
(-5.21)
-0.017
(-4.20)
0.001
(0.79)
0.049
(2.91)
0.433
(0.64)
0.010
(0.73)
0.001
(0.50)
-0.000
(-0.02)
IY
1,376,567
3.1%

-0.017
(-4.95)
-0.016
(-1.77)
0.001
(0.27)
0.049
(1.77)
0.561
(0.46)
0.010
(0.76)
0.001
(0.38)
-0.000
(-0.05)
IY
1,376,567
3.1%

-0.020
(-4.54)
-0.015
(-2.22)
0.002
(0.76)
0.063
(2.06)
-0.192
(-0.16)
0.006
(0.29)
0.003
(1.27)
0.002
(0.31)
IY
1,192,228
3.9%

-0.024
(-3.85)
-0.006
(-1.42)
0.001
(0.69)
0.014
(1.27)
1.282
(2.07)
-0.012
(-0.71)
0.001
(0.51)
-0.003
(-0.76)
IY
651,208
1.9%

-0.017
(-3.76)
-0.009
(-1.97)
0.003
(1.59)
0.025
(1.62)
0.117
(0.14)
-0.004
(-0.22)
0.003
(1.33)
-0.005
(-0.95)
IY
927,693
2.9%

-0.029
(-0.30)
IY
1,376,567
3.3%

This table reports results of robustness tests on the relationship between news coverage and insiders trading profits. The table presents a panel regression of insiders trading
profits measured by market-adjusted returns (ReturnADJ) in Model (1), index-based alpha (AlphaIndex) in Model (2), three-month alpha (Alpha90) in Model (3), and the product
between trade size and alpha (Trade SizeAlpha) in Model (4), on news coverage related to insider trading (News CoverageIT) as well as firm-level control variables and
unreported industry- and year-fixed effects (IY). The firm-level control variables include firm size (Size), market-to-book ratio (MB), annual stock return (Return), stock
return volatility (STD), research & development (R&D), trade size (Trade Size), and trade frequency (Trade Frequency). The construction of these variables is detailed in the
Appendix of the paper and in the first section of this Internet Appendix. Key results are highlighted in bold. t-statistics shown in parentheses are based on standard errors
adjusted for heteroskedasticity and firm-level clustering except in Models (5)-(8). The standard errors in Models (5)-(8) are clustered by year, industry, insider, and both firm
and year, respectively. Models (9)-(11) show the results for alternative samples: stock price is more than $10 in Model (9); trade volume is more than 1,000 shares in Model
(10); Trade size is more than $10,000 in Model (11). Obs denotes the number of transaction observations, and R2Adj is adjusted R2. The sample period is between January
2001 and June 2012 based on insider trade dates.
Internet Appendix, Page8

TABLE IA2
Falsification Test on Stale News
Variable
News CoverageIT [-2Y,0]

Model
(1)

Model
(2)

Model
(3)

Model
(4)

-0.000
(-0.53)

News CoverageIT [-3Y,-2Y]

STD
R&D
Trade Size
Trade Frequency
Fixed Effects
Obs

-0.004
(-0.31)

0.000
(0.59)

News CoverageIT

Return

-0.001
(-0.09)

-0.000
(-1.49)

News CoverageIT [-2Y,-1Y]

MB

Model
(6)

-0.000
(-1.86)

News CoverageIT [-3Y,0]

Size

Model
(5)

-0.016
(-2.50)
0.000
(0.22)
0.045
(1.69)
0.593
(0.59)
0.010
(0.48)
0.001
(0.43)
-0.002
(-0.21)
IY
1,337,209

-0.016
(-2.24)
0.000
(0.10)
0.044
(1.63)
0.682
(0.61)
0.010
(0.52)
0.001
(0.42)
-0.001
(-0.08)
IY
1,292,631

-0.018
(-2.59)
-0.000
(-0.16)
0.044
(1.69)
0.516
(0.50)
0.006
(0.32)
0.001
(0.27)
-0.006
(-0.74)
IY
1,337,209

-0.021
(-2.59)
-0.000
(-0.23)
0.047
(1.72)
0.575
(0.51)
0.005
(0.26)
0.000
(0.18)
-0.006
(-0.73)
IY
1,292,631

0.020
(1.25)
-0.017
(-3.86)
-0.016
(-2.49)
0.001
(0.36)
0.047
(1.86)
0.563
(0.55)
0.011
(0.53)
0.001
(0.45)
-0.000
(-0.04)
IY
1,337,209

-0.018
(-4.23)
-0.018
(-2.45)
0.001
(0.41)
0.049
(1.88)
0.730
(0.66)
0.011
(0.54)
0.001
(0.40)
0.002
(0.24)
IY
1,292,631

R2Adj
3.0%
3.1%
2.9%
2.9%
3.1%
3.2%
This table presents a panel regression of insiders trading profits measured by alpha (Alpha) on news coverage
related to insider trading over the last two years (News CoverageIT [-2Y,0]), news coverage related to insider
trading over the last three years (News CoverageIT [-3Y,0]), news coverage related to insider trading within the
second last year (News CoverageIT [-2Y,-1Y]), news coverage related to insider trading within the third last year
(News CoverageIT [-3Y,-2Y]), news coverage related to insider trading (News CoverageIT), and firm-level control
variables as well as unreported industry- and year-fixed effects (IY). The firm-level control variables include
firm size (Size), market-to-book ratio (MB), annual stock return (Return), stock return volatility (STD), research
& development (R&D), trade size (Trade Size), and trade frequency (Trade Frequency). The construction of
these variables is detailed in the Appendix of the paper and in the first section of this Internet Appendix. Key
results are highlighted in bold. The t-statistics shown in parentheses are based on standard errors adjusted for
heteroskedasticity and firm-level clustering. Obs denotes the number of transaction observations, and R2Adj is
adjusted R2. The full sample period is between January 2001 and June 2012 based on insider trade dates.

Internet Appendix, Page9

TABLE IA3
Value Impact and Timeliness of News

Variable
High Impact News CoverageIT
Low Impact News CoverageIT

Model
(1)

News impact
Model
(2)

Model
(3)

-0.015
(-0.61)

-0.026
(-2.65)
0.029
(0.74)

-0.022
(-3.66)

Recent News CoverageIT

Model
(4)

-0.033
(-3.16)

News period
Model
(5)

Model
(6)

-0.030
(-1.63)
Old News CoverageIT
-0.017
-0.005
(-1.37)
(-0.25)
Size
-0.017
-0.019
-0.018
-0.017
-0.018
-0.017
(-2.94)
(-2.92)
(-3.04)
(-2.89)
(-2.92)
(-2.85)
MB
0.001
0.000
0.001
0.001
0.001
0.001
(0.55)
(0.05)
(0.49)
(0.41)
(0.29)
(0.49)
Return
0.049
0.047
0.049
0.050
0.047
0.050
(1.93)
(1.80)
(1.93)
(1.97)
(1.83)
(1.99)
STD
0.457
0.369
0.480
0.500
0.368
0.489
(0.50)
(0.39)
(0.54)
(0.55)
(0.39)
(0.55)
R&D
0.011
0.006
0.010
0.011
0.008
0.011
(0.55)
(0.33)
(0.52)
(0.57)
(0.39)
(0.58)
Trade Size
0.001
0.001
0.001
0.001
0.001
0.001
(0.42)
(0.26)
(0.38)
(0.43)
(0.31)
(0.44)
Trade Frequency
0.000
-0.006
-0.000
-0.000
-0.003
0.000
(0.07)
(-0.70)
(-0.01)
(-0.00)
(-0.45)
(0.06)
Fixed Effects
IY
IY
IY
IY
IY
IY
Obs
1,376,567 1,376,567 1,376,567
1,376,567 1,376,567 1,376,567
R2Adj
3.1%
2.9%
3.2%
3.1%
3.0%
3.1%
This table presents a panel regression of insiders trading profits measured by alpha (Alpha) on high impact
news coverage related to insider trading (High Impact News CoverageIT), low impact news coverage related to
insider trading (Low Impact News CoverageIT), recent news coverage related to insider trading (Recent News
CoverageIT), old news coverage related to insider trading (Old News CoverageIT), and firm-level control
variables as well as unreported industry- and year-fixed effects (IY). The firm-level control variables include
firm size (Size), market-to-book ratio (MB), annual stock return (Return), stock return volatility (STD), research
& development (R&D), trade size (Trade Size), and trade frequency (Trade Frequency). The construction of
these variables is detailed in the Appendix of the paper and in the first section of this Internet Appendix. Key
results are highlighted in bold. The t-statistics shown in parentheses are based on standard errors adjusted for
heteroskedasticity and firm-level clustering. Obs denotes the number of transaction observations, and R2Adj is
adjusted R2. The sample period is between January 2001 and June 2012 based on insider trade dates.

Internet Appendix, Page10

TABLE IA4
Routine and Non-Routine Transactions

Variable
News CoverageIT

Method one
Non-Routine
Routine
Model
Model
(1)
(2)
-0.044
(-1.95)

Non-Routine vs. Routine

[P-value]
Size
MB
Return
STD
R&D
Trade Size
Trade Frequency
Fixed Effects
Obs
R2Adj

0.014
(1.53)

Method two
Non-Routine
Routine
Model
Model
(3)
(4)
-0.042
(-1.80)

-0.058
[0.01]

0.014
(1.65)

Method three
Non-Routine
Routine
Model
Model
(5)
(6)
-0.043
(-1.87)

-0.056
[0.01]

0.014
(1.52)

Method four
Non-Routine
Routine
Model
Model
(7)
(8)
-0.042
(-1.84)

-0.057
[0.01]

0.014
(1.65)

-0.056
[0.01]

0.003
(0.35)
0.008
(1.67)
0.031
(1.21)
1.917
(1.44)
-0.037
(-1.26)
0.004
(1.23)
0.011
(1.25)
IY
204,090

-0.042
(-2.77)
-0.010
(-2.70)
0.081
(2.27)
-0.492
(-0.26)
0.029
(0.62)
0.007
(1.14)
0.048
(2.55)
IY
126,938

0.001
(0.09)
0.008
(2.13)
0.033
(1.33)
1.851
(1.44)
-0.035
(-1.23)
0.004
(1.12)
0.010
(1.20)
IY
207,754

-0.040
(-2.58)
-0.012
(-3.37)
0.076
(1.86)
-0.544
(-0.27)
0.030
(0.66)
0.008
(1.18)
0.048
(2.49)
IY
123,274

0.002
(0.28)
0.008
(1.85)
0.052
(2.27)
2.185
(1.67)
-0.036
(-1.25)
0.004
(1.11)
0.008
(0.99)
IY
199,978

-0.041
(-2.70)
-0.010
(-2.64)
0.078
(2.09)
-0.536
(-0.27)
0.025
(0.55)
0.008
(1.18)
0.049
(2.55)
IY
125,612

0.001
(0.14)
0.009
(2.37)
0.052
(2.31)
2.171
(1.67)
-0.035
(-1.22)
0.004
(1.09)
0.008
(0.97)
IY
202,316

-0.040
(-2.58)
-0.012
(-3.37)
0.076
(1.86)
-0.544
(-0.27)
0.030
(0.66)
0.008
(1.18)
0.048
(2.49)
IY
123,274

7.5%

14.0%

7.5%

14.4%

8.2%

14.0%

8.2%

14.4%

This table presents a panel regression of insiders routine and non-routine transaction profits measured by alpha (Alpha) on news coverage related to insider trading (News
CoverageIT), and firm-level control variables as well as unreported industry- and year-fixed effects (IY). The firm-level control variables include firm size (Size), market-tobook ratio (MB), annual stock return (Return), stock return volatility (STD), research & development (R&D), trade size (Trade Size), and trade frequency (Trade Frequency).
The construction of these variables is detailed in the Appendix of the paper and in the first section of this Internet Appendix. Routine and non-routine transactions are
classified using four methods. Method One requires that to be included in this analysis, an insider needs to trade at least once in each of the last three years but places no
Internet Appendix, Page11

conditions on the identification of routine traders. To mitigate the impact of trivial trades in this identification process, the first condition is that the number of shares traded is
equal to or more than 100, and the second condition is that the transaction price is equal to or more than $2. Method Two applies both conditions to identify routine traders
i.e. identification based on those non-trivial trades executed in the same month over the three-year period preceding the inside transaction. In Method Three the two
conditions apply to the sample selection process we require an insider to make non-trivial trade at least once in each of the last three years. In Method Four we impose the
conditions to both the sample selection process and the identification of routine traders. Key results are highlighted in bold. The t-statistics shown in parentheses are based on
standard errors adjusted for heteroskedasticity and firm-level clustering. Obs denotes the number of transaction observations, and R2Adj is adjusted R2. The sample period is
between January 2001 and June 2012 based on insider trade dates.

Internet Appendix, Page12

TABLE IA5
SEC Investigation and Litigation Defendant

Variable
News CoverageITAlphaFirm
News CoverageIT
AlphaFirm
Size
MB
Return
STD
R&D
Trade Frequency
ROA
S&P 500
Fixed Effects
Obs

SEC Investigation
Model
(1)

Litigation Defendant
Model
(2)

Investigation or Defendant
Model
(3)

1.407
(3.14)
0.406
(0.99)
-0.030
(-0.09)
0.693
(7.75)
-0.021
(-0.83)
0.122
(0.54)
22.516
(3.00)
0.040
(0.08)
-0.122
(-1.90)
-1.258
(-2.21)
0.523
(1.62)
IY
40,130

0.437
(2.39)
0.203
(1.93)
0.057
(0.84)
0.622
(23.88)
-0.010
(-1.25)
-0.115
(-2.76)
17.158
(9.24)
0.233
(2.49)
0.040
(2.77)
-0.407
(-2.36)
0.276
(3.30)
IY
40,130

0.439
(2.41)
0.202
(1.91)
0.058
(0.86)
0.620
(24.06)
-0.010
(-1.27)
-0.111
(-2.67)
17.154
(9.30)
0.213
(2.28)
0.040
(2.78)
-0.432
(-2.53)
0.287
(3.44)
IY
40,130

R2Pseudo
21.1%
20.2%
20.3%
This table presents a panel (firm-year) logistic regression of SEC Investigation dummy in Model (1), Litigation
Defendant dummy in Model (2), or a combined SEC Investigation and Litigation Defendant dummy in Model
(3), on the interaction between firm-level trading profits (AlphaFirm) and news coverage related to insider trading
(News CoverageIT). We control for other prior year firm-level characteristics including firm size (Size), marketto-book ratio (MB), annual stock return (Return), stock return volatility (STD), research & development (R&D),
trade frequency (Trade Frequency), return-on-asset ratio (ROA), and S&P 500 index membership (S&P 500), as
well as unreported industry- and year-fixed effects (IY). The construction of these variables is detailed in the
Appendix of the paper and in the first section of this Internet Appendix. Key results are highlighted in bold. The
z-values shown in parentheses are based on standard errors adjusted for heteroskedasticity and firm-level
clustering. Obs denotes the number of firm-year observations, and R2Pseudo is Pseudo R2. The sample period is
from 2000 to 2011 based on news release dates (one year lagged to the main sample of insider trades).

Internet Appendix, Page13