Some kinds of insider trading are perfectly legal – and they offer useful signals about a company’s health
Publish Date: 2026-06-29 08:33:00
Source Domain: theconversation.com
- The prevailing notion among business executives is that downsizing can streamline operations, increase productivity, and boost profitability by cutting costs.
- Recent downsizing at tech companies, like Meta, is driven by concerns related to massive disruptions from advancements in artificial intelligence, although it’s viewed negatively by employees and contributing to economic pessimism.
- Legal insider trading—legal stock transactions by company employees—can provide valuable insights into whether downsizing efforts will be successful by observing whether insiders buy or sell shares.
- The Sarbanes-Oxley Act requires insiders to disclose their stock trades within two days, making this information publicly available.
- Research by finance professors has found that insiders are more likely to buy stock when a company downsizes, particularly when the cuts exceed 5%, indicating optimism about the company’s future success.
- Companies experiencing downsizing and with insider purchases tend to see better stock performance, higher profitability, and a lower risk of financial distress over time compared to those where insiders sell their shares.
- For investors, insider buying signals a stronger commitment to the company’s turnaround strategy. For employees, these transactions offer transparency into the company’s viability.
- Companies that successfully manage downsizing efforts, as indicated by insider buying, tend to outperform those that do not over the longer term.
