Incentives for Public Disclosure by Corporate Insiders†

It is well understood that when corporate insiders trade shares in their firms stock for the sole purpose of maximizing trading profits, they benefit from asymmetric information, and consequently, favor minimal corporate financial disclosure requirements. We demonstrate that when insiders are risk-averse and have other motives for trade, such as liquidity needs, they can actually be harmed by asymmetric information, which increases trading costs. Consequently, insiders could favor full disclosure over nondisclosure, and generally prefer an intermediate level of disclosure, in which they give up some but not all of their information advantage.