A large Canadian public company announced that its revenues and earnings for the quarter ended March 31, 20×1, would be substantially below analysts’ estimates. Its share price promptly fell by 23% on the Toronto Stock Exchange. During January 20×1, the sale of over 5 million of the company’s shares by an inside director had been widely reported in the financial

Sep 8, 2023

A large Canadian public company announced that its revenues and earnings for the quarter ended March 31, 20×1, would be substantially below analysts’ estimates. Its share price promptly fell by 23% on the Toronto Stock Exchange. During January 20×1, the sale of over 5 million of the company’s shares by an inside director had been widely reported in the financial media. The March 20×1 announcement of lower revenues and earnings immediately led to charges by the media that the director had taken advantage of  inside information when he decided to sell his shares in January

Explain which type of information asymmetry is implied by these media charges and indicate how shareholders and the firm’s share price are predicted to respond

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A large Canadian public company announced that its revenues and earnings for the quarter ended March 31, 20×1, would be substantially below analysts’ estimates. Its share price promptly fell by 23% on the Toronto Stock Exchange. During January 20×1, the sale of over 5 million of the company’s shares by an inside director had been widely reported in the financial
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