Description
consists of three essays and focuses on informed trading by various economic agents. The first essay provides causal evidence that compensation shocks due to missing relative performance goals prompts more opportunistic insider trading. I use a regression discontinuity design to identify the effect of missing relative performance goals on insider trading. I find that CEOs who narrowly miss relative performance goals and hence receive a lower pay earn higher abnormal profits from their insider trades subsequent to the compensation shock than otherwise similar CEOs who narrowly beat the goals. I also find that CEOs who narrowly miss relative performance goals become less likely to provide earnings and sales guidance. These results suggest that managers can use insider trading to make up for the loss in compensation due to missing relative performance goals, which could reduce the incentive effect of performance-based pay. The second essay, coauthored with Jiekun Huang, identifies the effect of the implementation of the EDGAR system on information production by market participants. Modern information technologies have fundamentally changed how information is disseminated in financial markets.
