The Deterrent Effect of Whistleblowing on Insider Trading
Journal of Financial and Quantitative Analysis
Posted: 28 Sep 2020 Last revised: 20 Sep 2023
Date Written: May 20, 2020
Abstract
I study whether the Dodd-Frank whistleblower program reduced informed trading by corporate insiders. To identify the effect, I partition firms based on the extent to which this program affected the likelihood of whistleblowing at each firm. I find a relative reduction in trading profits on purchases made by insiders at more affected firms after the program was initiated. I analyze insider sales in settings where they are more likely to be informed and find a reduction in the number of sales before negatively perceived events. The results suggest that whistleblower protections and rewards can effectively deter insider trading.
Keywords: Whistle-blowing, Insider Trading, Dodd-Frank
JEL Classification: K22, K42, M48
Suggested Citation: Suggested Citation