FRAUDULENTLY MISSTATED FINANCIAL-STATEMENTS AND INSIDER TRADING - AN EMPIRICAL-ANALYSIS

This study investigates the relationship between insider trading and f raud. We find that in the presence of fraud, insiders reduce their hol dings of company stock through high levels of selling activity as meas ured by either the number of transactions, the number of shares sold, or the dollar amount of shares sold. Moreover, we present evidence tha t a cascaded legit model, incorporating insider trading variables and firm-specific financial characteristics, differentiates companies with fraud from companies without fraud.