This paper documents significant trading by insiders around a first-time debt covenant
violation disclosure in an SEC filing. This is interesting from a research and regulatory
standpoint because of three considerations: the delay and infrequency of a new covenant
violation disclosure, a lack of attention to covenant disclosures by regulators, and a dearth of
research.

Griffin and his co-authors David H.Lont and Kate McClune from the University of Otago find a lead relation between net insider selling in the 12 months before a debt covenant violation disclosure and investors’ negative returns and net insider buying up to 12 months after disclosure and investors’ positive returns.