{"id":42732,"date":"2026-06-29T07:15:00","date_gmt":"2026-06-29T14:15:00","guid":{"rendered":"https:\/\/www.lifeandnews.com\/articles\/?p=42732"},"modified":"2026-06-30T00:17:37","modified_gmt":"2026-06-30T07:17:37","slug":"some-kinds-of-insider-trading-are-perfectly-legal-and-they-offer-useful-signals-about-a-companys-health","status":"publish","type":"post","link":"https:\/\/www.lifeandnews.com\/articles\/some-kinds-of-insider-trading-are-perfectly-legal-and-they-offer-useful-signals-about-a-companys-health\/","title":{"rendered":"Some kinds of insider trading are perfectly legal \u2013 and they offer useful signals about a company\u2019s health"},"content":{"rendered":"\n

D. Brian Blank<\/a>, Mississippi State University<\/a><\/em>; Dallin Alldredge<\/a>, Florida International University<\/a><\/em>, and Lee Biggerstaff<\/a>, Miami University<\/a><\/em><\/p>\n\n\n\n

It\u2019s a mantra among business executives that slashing their workforce will streamline operations and increase productivity \u2013 a strategic boost to the bottom line. And recent downsizing announcements have been no different, especially at tech companies citing massive disruptions<\/a> caused by artificial intelligence.<\/p>\n\n\n\n

Meta CEO Mark Zuckerberg, for example, stated in May 2026<\/a> that \u201cthis is the most dynamic I have seen our industry\u201d as the company was starting its announced cull of 8,000 workers. He added: \u201cI\u2019m optimistic about everything we\u2019re building. But success is not a given.\u201d<\/p>\n\n\n\n

For affected workers, of course, downsizing is brutal. And growing fears over diminishing job security<\/a> in white-collar fields once thought of as safe are a key driver behind Americans\u2019 growing pessimism about the economy.<\/p>\n\n\n\n

But for two other groups \u2013 the workers still employed at downsizing companies, as well as investors \u2013 there\u2019s a source of clarity amid the chaos. To see whether job cuts will actually help turn a business around, they can find a valuable signal<\/a> in the buying and selling of the company\u2019s stock by its own employees, especially in its senior ranks.<\/p>\n\n\n\n

This type of insider trading, which is perfectly legal, was the focus of our research<\/a> as finance<\/a> professors<\/a>. We found that it\u2019s possible to predict the outcomes<\/a> of corporate downsizing by looking at whether these insiders show their confidence, or lack thereof, in turnaround plans by selling or buying company stock.<\/p>\n\n\n\n

This knowledge is also easier and quicker to come by than it used to be. Following the 2002 enactment of a sweeping accounting reform law, the Sarbanes-Oxley Act<\/a>, these trades have to be disclosed within two days<\/a>.<\/p>\n\n\n\n

A different type of insider trading<\/h2>\n\n\n\n

Media attention typically focuses on illegal insider trading<\/a>, which happens when someone makes money off information that the public doesn\u2019t have. Lifestyle icon Martha Stewart<\/a> and Enron CEO Jeffrey Skilling<\/a> are just two of the more famous examples, with both having to serve time in prison for their crimes.<\/p>\n\n\n\n

\"Former
Former Enron CEO Jeffrey Skilling served 12 years in prison for insider trading, securities fraud and other felonies behind his company\u2019s collapse. AP Photo\/Pat Sullivan<\/a><\/figcaption><\/figure>\n\n\n\n

But researchers have been asking<\/a> another question for years: What can we learn from the legal trading of a company\u2019s stock by employees? This practice is in fact quite common<\/a>. Publicly listed companies often compensate their workers with equity, which they can sell<\/a> if they choose, and sometimes employees can also buy<\/a> their company\u2019s stock.<\/p>\n\n\n\n

This type of insider trading<\/a> is permitted as long as those buying and selling shares don\u2019t have material and nonpublic information, such as unreleased earnings numbers. It can also be quite profitable, especially at large multinational companies, research shows. This finding holds even when the windows for trading are restricted<\/a> at specific times, like after quarterly earnings are announced.<\/p>\n\n\n\n

The reason these insiders have an edge is not secret information. They\u2019re just much better in general at processing public information<\/a> and forecasting their company\u2019s performance than investors on the outside.<\/p>\n\n\n\n

Of course, a company\u2019s future is highly uncertain when it\u2019s laying off employees. So the next question is whether trades around such pivotal downsizing events signal how its employees, especially those who are most in the know, assess the turnaround plan touted by leadership, and if they believe it will actually work.<\/p>\n\n\n\n

While these are valuable clues for investors, this information is also accessible to workers still at the company \u2013 presumably those who are most eager to know whether their employer will succeed. Thanks to Sarbanes-Oxley, senior staff are required to file a form<\/a> with the Securities and Exchange Commission<\/a>, the regulator that helps protect capital markets, on their purchases and sales of company stock. The SEC then makes these available<\/a> to the public.<\/p>\n\n\n\n

Finding signal in the noise<\/h2>\n\n\n\n

Whether downsizing actually helps a company turn things around<\/a> remains an open debate. Some researchers argue that it can have value<\/a>, especially if it\u2019s done proactively<\/a>. Others have concluded that workforce cuts alone<\/a> won\u2019t fix an ailing business, and can in fact damage profitability<\/a>.<\/p>\n\n\n\n

But we argue that there\u2019s another way to find clarity on whether cuts will turn a business around. We analyzed<\/a> nearly 9,000 firms from 1987 to 2022, covering more than 70,000 transactions. And we made several surprising findings. First, insiders are more likely to purchase their company\u2019s stock when it\u2019s downsizing. And if a company slashes staff by at least 5%, there\u2019s a significant jump in share purchasing by insiders and significantly less selling \u2013 which suggests they\u2019re optimistic about their company.<\/p>\n\n\n\n

In cases when insiders\u2019 purchasing of shares jumped, the company\u2019s stock performance improved as well. In fact, insider purchases at downsizing firms were more profitable than trades by insiders at stable firms. This link is even stronger when we just look at traded shares held by senior executives.<\/p>\n\n\n\n

To take two examples: Corning Inc.<\/a> and Ball Corp.<\/a> both laid off employees in 2022. However, insiders at Ball showed their optimism by purchasing shares of the firm, while those at Corning did not. During the following year, Ball\u2019s stock performance rose over 9%, while Corning was down more than 6%. Those results reflected the fact that Ball had a successful turnaround strategy, in contrast to Corning.<\/p>\n\n\n\n

In short, trading signals by senior corporate executives were a useful predictor of future stock performance when the company faced headwinds and had to trim staff.<\/p>\n\n\n\n

What happened to these firms in the years after the job cuts? Over the longer term, the companies that had insiders purchasing their stock posted higher profits and share prices than at downsizing companies that did not. The former were also more likely to avoid bankruptcy or financial distress.<\/p>\n\n\n\n

This suggests that the insiders put their money where their mouth is \u2013 and tell the market that they know the company is going to succeed.<\/p>\n\n\n\n

What do investors and employees need to know?<\/h2>\n\n\n\n

For investors, these signals are valuable when they need to assess the future prospects of the companies they invest in. Executives may say the business is forging a new strategic direction by cutting costs, but if they\u2019re also buying their company\u2019s stock, they\u2019re making a more robust commitment.<\/p>\n\n\n\n

More broadly, though, these lessons aren\u2019t just important for investors or the business elites. Rank-and-file workers can apply them as well. And in these uncertain times of rapid change, this type of clarity can make all the difference.<\/p>\n\n\n\n

D. Brian Blank<\/a>, Associate Professor of Finance, Mississippi State University<\/a><\/em>; Dallin Alldredge<\/a>, Assistant Professor of Finance, Florida International University<\/a><\/em>, and Lee Biggerstaff<\/a>, Assistant Professor of Finance, Miami University<\/a><\/em><\/p>\n\n\n\n

This article is republished from The Conversation<\/a> under a Creative Commons license. Read the original article<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

D. Brian Blank, Mississippi State University; Dallin Alldredge, Florida International University, and Lee Biggerstaff, Miami University It\u2019s a mantra among business executives that slashing their workforce will streamline operations and increase productivity \u2013 a strategic boost to the bottom line. And recent downsizing announcements have been no different, especially at tech companies citing massive disruptions […]<\/p>\n","protected":false},"author":56,"featured_media":42733,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[5,826,277,10,25,27,15533],"tags":[832,5455,4957,17890,885,891,886,860,677,3231,1580],"_links":{"self":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/42732"}],"collection":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/users\/56"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/comments?post=42732"}],"version-history":[{"count":1,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/42732\/revisions"}],"predecessor-version":[{"id":42734,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/42732\/revisions\/42734"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media\/42733"}],"wp:attachment":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media?parent=42732"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/categories?post=42732"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/tags?post=42732"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}