Event Details

Accounting Seminar presented by Andrew Pierce, Georgia State University. Paper title: General Counsel, Form 4 Reporting, and Corporate Immunity to Opportunistic Trading.

Andrew Pierce - Georgia State Robinson College of Business (gsu.edu)

Abstract: Corporate insiders can profit from privately informed equity trades, absent proper governance. Prior studies explore whether regulation or corporate governance mitigates exploitive trading, and show some efficacy with General Counsel (GC) approval. These studies do not, however, observe how the GC governs trading, leaving unclear the degree of scrutiny. We identify a novel approach to measure trade-level GC monitoring of insider trading via the SEC Form 4 signature line. For 462 health-sector firms, before and during the COVID-19 crisis, we collect data on the identify of Form 4 signatories, to identify GC-signed transactions. We highlight this sample because insiders possessed highly exploitable private information during the pandemic, yet trading was difficult to monitor due to lockdown mandates and the proliferation of remote working arrangements. We find that GC scrutiny of trading is not consistent across firms. In 32% (22%) [46%] of our sample firms, we observe that the GC signed all (a fraction of) [zero] insider transactions. During the crisis, we find that healthcare insiders earned astonishing profits on open-market purchases in cases where the GC did not sign the Form 4 filings, even within firms where there is variation in GC signing. Remarkably, much of the opportunistic trading we observe during the crisis involves insiders purchasing shares before significant news events, such as clinical trials, FDA approvals, and breakthroughs related to COVID-19 products/partnerships. We find little evidence of opportunistic trading during COVID-19 when the GC did sign the Form 4 filings. Collectively, our results suggest that GC scrutiny of individual insider transactions offers highly efficacious governance.