7. Conclusion
In this paper, I investigate the association between changes in the optimistic tone of earnings announcements and CEOs' equity sales. Using a sample of approximately 20,000 firm-quarters from 1998 to 2007, I find a positive relation between changes in earnings announcement tone and CEO equity sales. The positive relation is mitigated by SOX and by litigation risk. Consistent with the literature, I also find a positive relation between changes in optimistic tone in earnings announcements and abnormal returns. I use this relation to compute CEOs' gain from selling equity after more-optimistic earnings announcements and find that it is small relative to the total CEO compensation. My study makes a contribution to several streams of literature. The literature shows that insider trading is related to the propensity of managers to make earnings forecasts (Cheng & Lo, 2006), overall disclosure quality (Rogers, 2008), and the numerical results reported in the earnings announcement (Aier, 2013; Cheng & Warfield, 2005). My findings extend the literature by documenting that a specific aspect of narrative disclosure (the optimistic tone of the earnings announcement) is associated with CEO equity sales.
