Rule 10b5-1 Trading Plan Disclosure Choice M. Todd Henderson The University of Chicago Law School 1111 East 60 th Street Chicago, IL 60637 toddh@uchicago.edu Alan D. Jagolinzer Stanford University Graduate School of Business 518 Memorial Way Stanford, CA 94305 jagolinzer@stanford.edu Karl A. Muller, III The Pennsylvania State University Smeal College of Business 384 Business Building University Park, PA 16802 muller@psu.edu April 17, 2008 Preliminary: Please do not quote or circulate without permission Abstract: Firms have the option to voluntarily disclose the existence of and details within insiders’ Rule 10b5-1 trade plans. This study examines the determinants of disclosure and the association between disclosure and insiders’ strategic trade behavior. We find evidence that voluntary disclosure is greater at firms with higher litigation risk and with higher insider strategic trade potential. We also find that insiders’ trade returns are greater for firms disclosing plan participation, particularly at firms that disclose specific plan details. Disclosure firms’ insiders’ sales are associated with subsequent earnings news declines and other substantive negative news events. Collectively, this suggests that 10b5-1 voluntary disclosure may provide legal protection for strategic trade. It also suggests that non-disclosing firms are least associated with strategic trade; therefore an SEC disclosure mandate might not mitigate strategic activity within the Rule. We thank David Abrams, Chris Armstrong, Anne Beyer, Zahn Bozanic, Paul Fischer, Tom Miles, and Andy Van Buskirk for helpful feedback. We also thank Ilya Beylin, Thomas R. Marks, II, and Ruben Rodrigues for helpful research assistance. Henderson acknowledges financial support from the George J. Phocus Fund. Jagolinzer acknowledges financial support from the James and Doris McNamara Faculty Fellowship for 2007-2008. Muller acknowledges financial support from the Smeal Faculty Fellowship for 2007-2008.