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Study Finds Insiders Dump Stock Before Comment Letters Go Public

Tammy Whitehouse | September 3, 2014

Executives get advance warning when an unfavorable regulatory comment on revenue is going to be made public, and they use that lead time to dump stock, according to a recent academic study presented to the American Accounting Association.

The authors of the study out of the University of California at Berkeley say they have gathered evidence that shows an increase in insider trades before public disclosure of comment letters from the Securities and Exchange Commission related to revenue recognition. They also say they see evidence that trading is more pronounced at companies where there are legitimate financial reporting and valuation concerns. “Our finding suggest that the time delay in comment letter disclosure can be used by corporate executives to avoid small but significant stock price losses,” wrote authors Patricia Dechow, Alastair ...

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