We examine the relationship between uncertainty disclosure tone and insider sales profitability based on a large sample of U.S. listed firms. We find that where financial reports exhibit higher levels of uncertainty disclosure tone, insider sales profitability is higher. Our results are robust to endogeneity tests, alternative measurement specifications, and in models with additional control variables. Subsample tests show that the positive and significant relationship between uncertainty disclosure tone and the profitability of insider sales is sustained when firms face high litigation risk or financial reports exhibit lower levels of disclosure complexity. This research extends prior insider trading research by demonstrating that obfuscation of financial information through uncertainty in disclosure tone can be employed to retain the private benefits of that information and to enhance trading profitability. These findings have important implications for shareholders and regulatory bodies given that the nature of the language used in financial reports may impact the integrity and transparency of financial markets.
Geng et al. (Sun,) studied this question.