Does Insider Trading Regulation Deter Private Information Trading? International Evidence
37 Pages Posted: 15 Jan 2007
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Does Insider Trading Regulation Deter Private Information Trading? International Evidence
Does Insider Trading Regulation Deter Private Information Trading? International Evidence
Date Written: January 1, 2007
Abstract
Using a sample of 2,189 firms from 21 countries we find that, on average, stricter insider trading regulations reduce private information trading. However, for firms with high agency costs, insider trading restrictions are less effective in deterring private information trading. We suggest that controlling shareholders who are banned from trading may resort to covert expropriation of firm resources thereby reducing transparency and increasing the returns to private information trading. Consistent with this, we find that firms with higher agency costs located in countries with stricter insider trading laws have more opaque earnings and are valued lower.
Keywords: Insider trading regulation, ownership wedge, private information trading, earnings opacity
JEL Classification: G15, G14, G38
Suggested Citation: Suggested Citation
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