Insider Trading Activity around Auto Recalls

• In Event: Financial Accounting and Reporting 5

Abstract

ABSTRACT: In this paper we examine whether the top five executives of automakers engage in abnormal selling during various stages of auto recalls. We find no evidence of abnormal selling around the date the auto recall is publicly announced. However, we find that insider selling activity is concentrated around the one month before the date the defect report was received by the National Highway Traffic and Safety Administration. We further document that insider selling activity is more pronounced prior to auto recalls preceded by more severe customer complaints (number of accidents, injuries, fires etc.) or accompanied with larger declines in the manufacture’s share price. Collectively, we provide evidence consistent with insiders of automakers engaging in opportunistic trading activity at the expense of other shareholders.

Authors

• Abdullah Kumas, University of Richmond

• Musa Subasi, University of Missouri-Columbia

• Sami Keskek, University of Arkansas-Fayetteville

• omer gokalp, Suffolk University