When the litigation risk is higher, future
stock returns are significantly lower following unconditional insider silence
(no trade behavior during the last year) than following insider sales .
Specifically, Hong and Li  define the silence that routine-based insiders
strategically choose as conditional insider silence and find that conditional
insider silence following routine sell (buy) results in positive (negative)
future return. In this paper, we examine whether there are different between
the conditional and unconditional insider silence effects in the Chinese stock
market. We find that the unconditional insider silence effect is greater than
the conditional insider silence effect. Moreover, the firm would have positive
abnormal compensation after quarterly earnings announcement under unconditional
insider silence. We do not have enough evidence to support that the conditional
(unconditional) insider silence effect is larger for companies with good
corporate governance than for companies with poor corporate governance.
Empirical results show that there are no significant difference between CEO and
non-CEO’s conditional and unconditional insider silence effects.
JEL classification numbers: G11, G14, G34.
Keywords: Insider silence, Earnings announcement, Corporate