We examine whether/how mandatory reporting enhancements influence insider trading in the presence of information asymmetry between headquarters executives (HQEXs) and divisional managers (DMs). Stricter reporting mandates discipline HQEXs from overstating firm performance, but then they can promote informed share purchases of DMs who fail to convince HQEXs to disclose positive divisional information. We test this prediction using the adoption of Financial Accounting Standards No. 131 (FAS 131) as a regulatory shock that enhances HQEXs’ segment reporting obligations. The adoption of FAS 131 increases DMs’ purchases but not HQEXs’. DMs’ increased purchases are negatively associated with reporting quality. We also examine the timing of DMs’ purchases around segment reporting releases, the impact of business concentration within conglomerates and the role of institutional investors. Our study provides novel policy implications for financial reporting and insider trading. 

Keywords: internal information asymmetry, insider trading, conglomerates, mandatory disclosure, FAS 131 

JEL classification: G14, G34, M41, M48