Earnings management and insider trading from the perspective of information competition: models, experiments and empirical evidence

The financial disclosure of IPO firms is full of information asymmetry, with frequent earnings reversion. In the presence of overwhelming and noisy financial information, how to help small investors to discover the true value of firms is an important research topic to promote the market efficiency. From the perspective of information horse race between earnings management and insider trading, this project aims to establish a complete information signaling mechanism of firm value, using the methodology of theoretical modeling, lab experiment, and empirical studies. The whole project consists of three parts: (1) the theoretical part aims to clarify the trade-off between the short-term benefit and the long-term cost in the earnings management and insider trading; (2) the experimental part aims to analyze the institutional and market factors in determining the signaling mechanism of firm value; and (3) the empirical part aims to provide precise measure of the critical proxies, test the market reactions to earnings management and insider trading, and compare the monitoring efficiency of different IPO regulations. Through these three parts, the project will systematically depict the signaling mechanism of firm value, help investors to recognize valuable investment opportunity, and provide useful policy recommendation.