Some kinds of insider trading are perfectly legal – and they offer useful signals about a company’s health
Publish Date: 2026-06-29 08:33:00
Source Domain: theconversation.com
It’s a mantra among business executives that slashing their workforce will streamline operations and increase productivity – a strategic boost to the bottom line. And recent downsizing announcements have been no different, especially at tech companies citing massive disruptions caused by artificial intelligence.
Meta CEO Mark Zuckerberg, for example, stated in May 2026 that “this is the most dynamic I have seen our industry” as the company was starting its announced cull of 8,000 workers. He added: “I’m optimistic about everything we’re building. But success is not a given.”
For affected workers, of course, downsizing is brutal. And growing fears over diminishing job security in white-collar fields once thought of as safe are a key driver behind Americans’ growing pessimism about the economy.
But for two other groups – the workers still employed at downsizing companies, as well as investors – there’s a source of clarity amid the chaos. To see whether job cuts will actually help turn a business around, they can find a valuable signal in the buying and selling of the company’s stock by its own employees, especially in its senior ranks.
This type of insider trading, which is perfectly legal, was the focus of our research as finance professors. We found that it’s possible to predict the outcomes of corporate downsizing by looking at whether these insiders show their confidence, or lack thereof, in turnaround plans by selling or buying company stock.
This knowledge is also easier and quicker to come by than it used to be. Following the 2002 enactment of a sweeping accounting reform law, the Sarbanes-Oxley Act, these trades have to be disclosed within two days.
A different type of insider trading
Media attention typically focuses on illegal insider trading, which happens when someone makes money off information that the public doesn’t have. Lifestyle icon Martha Stewart and Enron CEO Jeffrey Skilling are just two of the…
