Insiders holding both restricted and unrestricted stock must decide which type of equity to trade. We investigate the relation between this choice and the market response to insider sales. If insiders choose restricted stock, the sale must be preannounced, but if they choose unrestricted stock, the sale is disclosed after the sale occurs. Preannounced trades are less likely to reflect informed trades. Consistent with this, in the pre-Sarbanes-Oxley (SOX) period, we find a more negative market response to unrestricted stock sales than preannounced restricted stock sales. The result does not hold for our post-SOX period when reporting times were accelerated. Our results suggest researchers who examine data over the pre-SOX period should consider the effect of restricted stock sales in tests of informed insider trading.
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