Using US data for the period from 2004 to 2012 and alternative
discretionary accruals measures, we examine whether insiders manipulate
earnings in an asymmetric information environment to profit from their
informed trades, and whether the intervening information environment
influences the relationship between earnings management and insider
trading. We show that insider trading dominated by sell trades has a
positive association with discretionary accruals. The incremental effect
of information asymmetry as well as the interaction with insider
trading is also prevalent in this relation, confirming the moderating
effect of asymmetric information. Further, we show that the active
involvement of some key insiders in high discretionary accruals is for
personal benefit more in growth firms than in value firms. Our results
also suggest that earnings management allows for insiders’
opportunistic, rather than routine, buy and sell trades. Our findings
highlight that regulators should oversee and scrutinise both insider
trading and earnings management to mitigate the risk of the
opportunistic behaviour of insiders to avoid future corporate scandals.