This study explores the ethical implications of information asymmetry in corporate governance, focusing on insider trading by firm managers and the largest shareholders. We empirically analyze trading behaviors around distress events and their subsequent recoveries in the context of the Chinese Stock Exchange. The findings reveal that both managers and the largest shareholders exploit their privileged access to information for personal gain, significantly impacting other investors. However, this behavior is less prevalent among state-owned enterprises (SOEs), where the largest shareholders do (...) not engage in opportunistic trading. In contrast, family-owned firms exhibit a heightened use of insider information, with the largest shareholders strategically trading to maximize personal benefits. Our analysis extends to unobservable insider information, demonstrating that the largest shareholders’ trades are strongly associated with negative performance events, reinforcing the presence of information asymmetry. These results underscore the need for stronger regulatory frameworks to safeguard investor interests and address ethical concerns in financial markets. (shrink)