Audit process, private information, and insider trading

Abstract While the shareholder benefits of audits are well documented, evidence on whether can facilitate opportunistic behavior by corporate insiders is scarce. In this paper, we examine audit process facilitates one particular form opportunism: informed trading insiders. We focus our analysis insider around report date. find an increase in date and that abnormally large for firms subsequently modified opinions. The abnormal concentrated among officers non-audit committee independent directors, most pronounced first-time opinions years where financial results restated. These trades highly opportunistic: they predict restatements, as a consequence, show avoid significant losses. Collectively, findings provide novel appear to exploit private information about process––a ostensibly designed protect shareholders––for gain.