Are CEOs More Informative than the CFOs? Empirical Evidence from Contrarian Beliefs and Superior Information

Informativeness of CEO and CFO trades gains ground in the academic literature. The existing research on CEO and CFO trades is unable to answer whether trades made by the CEOs and CFOs are based on the superior information or contrarian beliefs, especially in the category of opportunistic and routine trades. However, the driving forces behind the informativeness of the CEOs and CFOs are unexplored. By using a sample of 88,868 CEO and CFO trades from 2,271 firms for the period of 2004-2012, this paper reveals that CEOs’ opportunistic buy trades achieve greater cumulative abnormal returns than those of the CFOs, but CFOs utilize their financial expertise in rebalancing their portfolios by pursuing sale transactions, irrespective of the trade-type or trader-type, and hence, they outperform the CEOs. We show that the outperformance of the CEOs is predominantly for the superior information, but the outperformances of the CFOs reflect their financial expertise in rebalancing portfolios. We also find that contrarian beliefs lead to CEO and CFO sale transactions (routine and opportunistic), but superior information provokes opportunistic sale trades by CEOs and CFOs.