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Are CFOs’ Trades More Informative Than CEOs’ Trades?

Published online by Cambridge University Press:  19 April 2012

Weimin Wang ,
Yong-Chul Shin  and
Bill B. Francis
Weimin Wang
Affiliation:
wwang4@slu.edu, Cook School of Business, Saint Louis University, 3674 Lindell Blvd, St. Louis, MO 63108
Yong-Chul Shin
Affiliation:
yong-chul.shin@umb.edu, College of Management, University of Massachusetts Boston, 100 Morrissey Blvd, Boston, MA 02125
Bill B. Francis
Affiliation:
francb@rpi.edu, Lally School of Management and Technology, Rensselaer Polytechnic Institute, 110 8th St, Troy, NY 12180
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Abstract

We investigate whether trades made by chief financial officers (CFOs) reveal more information about future stock returns than those by chief executive officers (CEOs). We find that CFOs earn statistically and economically higher abnormal returns following their purchases of company shares than CEOs. During 1992–2002, CFOs earned an average 12-month excess return that is 5% higher than that by CEOs. The superior performance by CFOs occurs notwithstanding controls for risk factors and persists even after their trades are publicly disclosed. Further analysis shows that CFO purchases are associated with more positive future earnings surprises than CEO purchases, suggesting that CFOs incorporate better information about future earnings.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 47 , Issue 4 , August 2012 , pp. 743 - 762
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2012

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