Strategic trading by insiders in the presence of institutional investors

We examine how competition to trade on information with institutional traders affects insider trading. We find insiders complete their trades quicker when trading on the same side as institutions, and this effect is more pronounced when insiders are more informed. These findings support information-based models, suggesting that insiders accelerate their trading as institutional traders are likely to become privy to the private information and compete with them. We identify two possible channels by which institutional investors acquire private information: when insiders and institutional traders share the same broker, and when firms’ headquarters are in the same city as institutional traders. •Insiders compete with institutional investors to trade on information.•Insiders complete their trades more quickly when trading on the same side as institutions.•The competition effect is more pronounced when insiders are more informed or if they have long-lived information.•Broker and proximity are two possible channels by which institutional investors acquire private information.