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We examine how corporate insiders' cognitive ability (IQ) affects their decisions to time insider and outsider trading before abnormal stock price changes. Our analysis of archival data on male corporate insiders in Sweden shows they are less prone to time their insider selling and to sell in larger amounts, before abnormal stock price declines as IQ increases. We also find that insiders with a higher IQ are better at timing their outsider buying. Taken together, our results show that corporate insiders' IQ affects their trading decisions differently, depending on whether they are trading in their insider or outsider stocks. [ABSTRACT FROM AUTHOR]

Does earnings management, even though legal, hinder investor trust in reported earnings? Or do investors regard earnings management as a way for firms to convey private information, or simply as a neutral feature of financial reporting? We find that past abstinence from earnings management increases investor responses to future earnings surprises. Importantly, this effect occurs in industries where investor trust has recently been violated, and where managers would in the past have had incentives and opportunities to misrepresent earnings. Overall, investors seem to interpret the extent to which management resists temptations for misreporting as a "litmus test" of trustworthiness. [ABSTRACT FROM AUTHOR]