Insider Trading and Firm Performance: Does insider trading reflect future firm performance on the Swedish market and how can we interpret their behavior from a financial and regulatory standpoint?

Sammanfattning

We investigate whether insider trading reflects future firm performance on the Swedish market as it can assist outsiders in revising firm evaluation. The results are compared with US data to understand insider legislation efficiencies. Our findings suggest that insider trading predicts future stock performance but not future change in return on assets. Relative firm valuation may be used to interpret the insider purchase ratio but not contemporaneous stock performance or contemporaneous change in return on assets. This implies that it is possible to implement insider behavior analysis during firm evaluation, which may enable improved stability in the market environment as it mitigates asymmetric information. However, as the results also indicate that insiders base trades on superior information, it could mean that the desired effects of EU regulations are not being met. Therefore, law and finance entities may cooperatively investigate to potentially improve regulations further.