abstract: Insider trading potentially reveals proprietary information, allowing rivals to compete more effectively against the insiders' firm. This paper examines whether proprietary costs are associated with insiders' trading decisions and the profitability of their trades. Using a variety of approaches to identify proprietary information risk, I find proprietary costs significantly deter insiders' trading activities. The deterrence effect is more pronounced when insider trading is likely to be more informative to rivals. Specifically, trades by top executives, non-routine trades, and trades at low complexity firms are curbed to a greater extent by proprietary costs. Examining the mechanisms of this deterrence effect, I find firms with higher proprietary costs are more likely to impose insider trading restrictions, and insiders' trading decisions are more sensitive to proprietary costs when they have higher share ownership of the company. These results suggest insiders reduce trading activities not only due to firm policies, but also due to incentive alignment. Finally, when insiders trade despite higher proprietary costs, they earn significantly higher abnormal profits from their purchase transactions. Overall, this study suggests product market considerations are an important factor associated with insiders' trading decisions and profitability of their trades. These findings are likely to be of interest to regulators and corporate boards in setting insider trading policies, and help investors make investment decisions using insider trading signals. / Dissertation/Thesis / Doctoral Dissertation Accountancy 2017

This dissertation investigates the economic consequences from hedge accounting signals and risk management disclosure. I first examine the product market consequences to these accounting signals and related disclosure in Chapter 1, then stock market reactions to disclosure requirements in Chapter 2. Chapter 1 examines potential entrants’ strategic entry decisions in response to incumbents’ accounting information and related disclosure. I predict that potential entrants are more likely to enter markets in which the incumbents’ accounting information suggests higher future production costs that are specific to the incumbents themselves. I further hypothesize that the relation is stronger when the accounting signals are accompanied by more disclosure. Using detailed U.S. airline industry data and hedge accounting disclosure under SFAS 133, I find that potential entrants are more likely to enter routes in which the incumbents’ lower accumulated other comprehensive income from fuel hedges suggests their higher future production costs. This entry pattern is stronger when incumbents have more transparent annual report disclosure regarding their fuel hedge programs. The entry pattern is also stronger after a systematic increase in risk management disclosure requirements following the (exogenous) adoption of SFAS 161. Chapter 2 analyzes stock returns of U.S. airlines around events leading up to the adoption of SFAS 161. SFAS 161 enhanced the disclosure requirements for derivatives and hedging activities. I find that U.S. airlines experienced statistically significant positive returns around the key events leading up to the adoption of SFAS 161. I then examine the cross-sectional variation of the returns around these events. Regression results provide initial support for the real effects theory that greater disclosure requirements could distort firms’ hedging and production decisions and lead to suboptimal behavior. In summary, this dissertation provides evidence that competitors use hedge accounting signals and related disclosure in making product market decisions. Meanwhile, additional risk-management disclosures may also distort firms’ hedging and production behavior, leading to suboptimal decisions. This dissertation sheds light on the ongoing projects by the FASB and the IASB on hedge accounting and disclosure and informs the regulators that costs and benefits should be weighted in hedge accounting policy setting.

This dissertation investigates the economic consequences from hedge accounting signals and risk management disclosure. I first examine the product market consequences to these accounting signals and related disclosure in Chapter 1, then stock market reactions to disclosure requirements in Chapter 2. Chapter 1 examines potential entrants’ strategic entry decisions in response to incumbents’ accounting information and related disclosure. I predict that potential entrants are more likely to enter markets in which the incumbents’ accounting information suggests higher future production costs that are specific to the incumbents themselves. I further hypothesize that the relation is stronger when the accounting signals are accompanied by more disclosure. Using detailed U.S. airline industry data and hedge accounting disclosure under SFAS 133, I find that potential entrants are more likely to enter routes in which the incumbents’ lower accumulated other comprehensive income from fuel hedges suggests their higher future production costs. This entry pattern is stronger when incumbents have more transparent annual report disclosure regarding their fuel hedge programs. The entry pattern is also stronger after a systematic increase in risk management disclosure requirements following the (exogenous) adoption of SFAS 161. Chapter 2 analyzes stock returns of U.S. airlines around events leading up to the adoption of SFAS 161. SFAS 161 enhanced the disclosure requirements for derivatives and hedging activities. I find that U.S. airlines experienced statistically significant positive returns around the key events leading up to the adoption of SFAS 161. I then examine the cross-sectional variation of the returns around these events. Regression results provide initial support for the real effects theory that greater disclosure requirements could distort firms’ hedging and production decisions and lead to suboptimal behavior. In summary, this dissertation provides evidence that competitors use hedge accounting signals and related disclosure in making product market decisions. Meanwhile, additional risk-management disclosures may also distort firms’ hedging and production behavior, leading to suboptimal decisions. This dissertation sheds light on the ongoing projects by the FASB and the IASB on hedge accounting and disclosure and informs the regulators that costs and benefits should be weighted in hedge accounting policy setting.

This study examines empirically whether ownership structure and board composition, political costs and media agenda setting, and proprietary costs influenced the related-party disclosures of Chinese listed companies during 2001 to 2005. The results indicate that ownership concentration, foreign ownership, the proportion of independent directors, firm size, media attention and growth opportunities have significantly affected related-party disclosures in China.

This study examines empirically whether ownership structure and board composition, political costs and media agenda setting, and proprietary costs influenced the related-party disclosures of Chinese listed companies during 2001 to 2005. The results indicate that ownership concentration, foreign ownership, the proportion of independent directors, firm size, media attention and growth opportunities have significantly affected related-party disclosures in China.