Insider trading, the use of material non-public information about a company’s performance to buy and sell shares in the stock market, is an illegal practice. Usually exchanged during private interactions between external investors and corporate executives, such information allows meeting participants to better anticipate changes of the value of company shares.
Even though investors are not allowed to obtain specific details about the company when privately meeting with corporate executives, such meetings are still quite popular. According to a Wall Street Journal article, investors spend a staggering $1.4 billion a year only in the United States to buy face time with corporate executives.
Without violating the law, investors can learn a lot by observing corporate executives’ body language and listening to tone of their voice and then use these bits and pieces of information to get ahead of the curve of other investors who didn’t attend these private meetings.
It turns out that investors are not the only ones using private meetings for their own benefit. A new study published in the prestigious Review of Accounting Studies by Telfer School of Management Professor Shantanu Dutta and his co-authors suggests that corporate executives are actually manipulating what’s exchanged in these meetings to have an advantage when trading their company shares.
To understand how corporate executives can benefit from secretly meeting with investors and the repercussions of these practices, read our full story here.