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Do voluntary corporate restrictions on insider trading eliminate informed insider trading?

Author

Listed:
  • Lee, Inmoo
  • Lemmon, Michael
  • Li, Yan
  • Sequeira, John M.

Abstract

We investigate whether voluntary corporate restrictions on insider trading effectively prevent insiders from exploiting their private information. Our results show that insiders of firms with seeming restrictions on insider trading continue to take advantage of positive private information while being more cautious when exploiting negative private information. The results suggest that insiders continue to exploit their informational advantages in a way that minimizes their legal risk. We also find that the degree of information asymmetry is significantly lower in firms with restriction policies and that corporate governance significantly affects firms' decisions to adopt these policies.

Suggested Citation

  • Lee, Inmoo & Lemmon, Michael & Li, Yan & Sequeira, John M., 2014. "Do voluntary corporate restrictions on insider trading eliminate informed insider trading?," Journal of Corporate Finance, Elsevier, vol. 29(C), pages 158-178.
    • Handle: RePEc:eee:corfin:v:29:y:2014:i:c:p:158-178
    DOI: 10.1016/j.jcorpfin.2014.07.005
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    More about this item

    Keywords

    Corporate governance; Information asymmetry; Insider trading; Profitability of insider trading; Voluntary corporate restrictions;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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