Attention To Retention: The Informativeness Of Insider's Decision to Retain Shares

Abstract

I show that corporate insiders’ decision to retain shares is pervasive and informative about future firm performance. Insiders file Form 144 with the US Securities and Exchange Commission to report their intention to introduce unregistered stock into their company’s public float. However, the form is not binding—insiders can legally choose to not follow through with a proposed sale at virtually no cost. I document that insiders’ retaining shares is pervasive: for as much as 36% of the proposed sales, insiders choose to retain at least some of the shares (i.e., “Retentions”) after they could have sold them. Retentions are associated with a 4.0% increase in annualized returns versus Sales. Additional analyses suggest that retaining shares is related to private information about the firm’s financial performance and to stock mispricing. Collectively, the results highlight yet another signal that should be accounted for when interpreting insiders’ trading decisions.