We provide new evidence on the information content of insider sales using insiders’ voluntary disclosures in footnotes on mandated SEC trade filings. Using the explanations about the nature of the sale disclosed in these footnotes, we are able to distinguish between discretionary sales, for which insiders have discretion over the amount and timing of the sale, and non-discretionary sales. We find that discretionary insider sales involve significantly larger trades and produce significantly lower abnormal returns to the trade filing than nondiscretionary sales. Consistent with investors not fully reacting to the information in these footnotes we find that discretionary insider sales are highly predictive of future negative stock returns and are associated with a higher propensity of future analyst downgrades, negative earnings surprises and future litigation. Our findings suggest that insiders strategically use footnote disclosures describing liquiditymotivated sales to disguise information-based sales.

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