Information asymmetry and the information content of insider trades: Evidence from the Indian stock market

• The paper examines the information content of insider trading for Indian firms.
• The information content of insider trading is an inverted U-shaped function of controlling ownership.
• Information asymmetry among firms improves the information content of insider trades.
• Prices of business group firms vary less after insider trades compared to standalone firms.

This paper investigates a proprietary dataset of insider trades for Indian listed firms, where controlling ownership and business groups dominate. We show that the information content of insider trading is an inverted U-shaped function of controlling ownership. Further, we find that the information content of insider trading is lower when firms are affiliated with a business group. We also show that information production depends on the degree of information asymmetry between insiders and outsiders. Finally, we find that insider trades that occur prior to an earnings announcement have a larger impact on stock prices.