Insider Trading, Investor Harm, and Executive Compensation

Case Western Reserve Law Review, Vol. 50, P. 291, 1999

Posted: 8 Feb 2000

Abstract

This article examines the three central challenges to insider trading set forth in Henry Manne's 1967 book: 1) that there is no coherent theory explaining insider trading; 2) that there is no significant injury to corporate investors from insider trading; 3) that insider trading constitutes the most appropriate device for compensating executives. As to the first, the article states that federal regulation has passed through three distinct movements that do not necessarily connect to one another. The current focus on agency concepts and the broader principles used by the Supreme Court in O'Hagan probably have no more staying power than the theories that defined previous movements. Investor harm has been difficult to show. A coherent theory about harm may turn on principles from behavioral economics and cognitive psychology. Executive compensation, the most controversial of Manne's original assertions, is an even weaker argument today because of the broadening array of alternative forms of executive compensation and their relative advantage in balancing incentives for executives and policing management behavior.

Suggested Citation

Thompson, Robert B., Insider Trading, Investor Harm, and Executive Compensation. Case Western Reserve Law Review, Vol. 50, P. 291, 1999, Available at SSRN: https://ssrn.com/abstract=206391

Robert B. Thompson (Contact Author)

Georgetown University Law Center ( email )

600 New Jersey Avenue, NW
Washington, DC 20001
United States
(202) 661-6591 (Phone)

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