내부회계관리제도의 취약점 공시가 내부자 매도거래에 미치는 영향

The purpose of this study is to investigate insider trading behavior prior to the disclosure of internal control weaknesses. We use data on insider trading and internal control audit opinions for firms listed on the KOSDAQ market over the period of 2008－2012, and examine whether insiders, who are likely to be informed of their own weaknesses in internal control, try to avoid the expected losses following the disclosure of internal control weaknesses by trading their holdings prior to the announcement of audit opinions. Our main findings are as follows. First, we find that the insiders of the firms with internal control weaknesses tend to trade more than the insiders of the firms without internal control weaknesses. The association between insider trading behavior and the disclosure of internal control weaknesses is statistically significant for insider purchases as well as insider sales, but the association is stronger for insider sales. Second, when we focus on the disclosure of material weaknesses in internal control, the association of pre－announcement insider trading and internal control weakness announcement is statistically significant for insider sales but not for insider purchases. In addition, the statistically significant association between insider sales and the disclosure of material weaknesses is stronger when the disclosure of material weaknesses is due to a disclaimer of opinion because of management’s refusal to furnish a written assessment about the effectiveness of internal control over financial reporting. These results suggest that informed trading by insiders to avoid the expected losses from the negative stock price reaction mostly occurs when insiders anticipate that audit opinions of material weaknesses in internal control are highly likely. Third, we find that insiders’ sales occur earlier for the cases of a disclaimer of opinion due to the lack of internal control documents furnished by management than other cases of internal control weaknesses. This result suggest that informed trading to avoid losses occurs earlier when the likelihood of receiving audit opinions of material weaknesses in internal control is higher. In addition, we find that stock price reaction to the disclosure of internal control weaknesses is significantly negative. Moreover, the stock price decline is biggest for the cases of a disclaimer of opinion due to the unfurnished internal control documents by management. These results on stock price reaction are consistent with insider trading behavior of stronger selling for the cases of more severe internal control weaknesses. Lastly, we test our main hypotheses using a sample of firms matched by industry and size, and find that our results are robust to using this alternative sample. Prior research on internal control system mostly focuses on the relationship between the disclosure of internal control weaknesses and firms characteristics or on the effect of establishing the internal control system. This study expands the scope of previous research by examining whether firm insiders, who are likely to be informed of their own weaknesses in internal control over financial reporting, trade their holdings to their advantage in anticipation of the disclosure of internal control weaknesses. This paper presents empirical evidence of insider trading behavior prior to the disclosure of material weaknesses in internal control that should be of interest for academics and practitioners alike. Given the recent media attention on several prominent cases of insider sales seemingly based on private information, the results of this study provide important implications for capital market participants and regulators.