Business Services
Business services: insider trades in consulting, staffing and outsourcing
A sector without its own literature
Consultancies, staffing agencies, security and leasing companies are rarely studied as a group in insider trading research, and we found no verified study on them. Their earnings depend on contract renewals, staff utilisation and the hiring cycle, which management sees in its weekly figures before it reaches the accounts.
Routine and opportunistic trades
The most useful general tool here is the distinction drawn by Cohen, Malloy and Pomorski (2012, Journal of Finance). Insiders who trade in the same calendar month year after year are routine traders whose trades do not predict returns; the remaining, opportunistic trades do. The authors also find that the most informed opportunistic traders are local, non-executive insiders in geographically concentrated, poorly governed firms.
Timing relative to results
Ke, Huddart and Petroni (2003, Journal of Accounting and Economics) observed insider sales building up three to nine quarters before a streak of rising earnings ended, and little selling in the two quarters right before. In staffing, where activity turns with hiring, a run of sales while reported growth is still positive matches that pattern. For one company, the pattern remains a weak clue.