Previous studies of insider trading have examined the profitability to executives of their stock trading with a view to evaluating the informational efficiency of securities markets. The authors examine empirically whether insider trading raises or lowers firm value. To correctly identify the effects on firm value at the margin, they correct for the simultaneity of earnings, insider holdings, and the amount of insider trading. The authors explicitly deal with simultaneity by using a two-part testing procedure. Their results suggest that insider trading lowers the value of the firm at the margin, but that greater executive stock ownership raises the value. Copyright 1991 by Blackwell Publishing Ltd.