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Digital transformation may give managers an information advantage that facilitates opportunistic behavior. We hypothesize that this enables managers to achieve excess returns from insider trading, increasing their engagement in such activities. We find that digital transformation significantly increases insider trading and pledging volumes, particularly for insider sales. When firms implement digital transformation, managers’ insider trading is positively associated with stock returns and financial performance. Managers can thus achieve significantly higher long-term excess returns from insider selling, increasing trading volumes. The effect is pronounced for firms with stronger management opportunism and less transparent information environments. Our findings suggest that digital transformation amplifies managerial information advantages, enabling more profitable and well-timed managerial opportunism; this underscores the need for stronger regulatory oversight.
Li et al. (Mon,) studied this question.