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The factors affecting illegal insider trading in firms with violations of GAAP

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  • Thevenot, Maya
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    Abstract

    Consistent with the economics of crime approach, this paper finds that insider selling is decreasing in the perceived costs of potential private and public enforcement upon discovery of GAAP misstatements, and increasing in managerial private benefits as measured by the market reaction to the misstatement announcement. Additionally, insiders at fraud firms sell more on average, although the intensity of their trades is less likely to be associated with the magnitude of their private information. Further analysis suggests that managers perceive a higher cost of public enforcement in the post-Enron period.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Accounting and Economics.

    Volume (Year): 53 (2012)
    Issue (Month): 1 ()
    Pages: 375-390

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    Handle: RePEc:eee:jaecon:v:53:y:2012:i:1:p:375-390

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    Web page: http://www.elsevier.com/locate/jae

    Related research

    Keywords: Economics of crime; Insider trading; Enforcement risk; Restatements; Fraud;

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    12. Ke, Bin & Huddart, Steven & Petroni, Kathy, 2003. "What insiders know about future earnings and how they use it: Evidence from insider trades," Journal of Accounting and Economics, Elsevier, vol. 35(3), pages 315-346, August.
    13. AC Pritchard, 2007. "Do the Merits Matter More? The Impact of the Private Securities Litigation Reform Act," Journal of Law, Economics and Organization, Oxford University Press, vol. 23(3), pages 627-652, October.
    14. Murphy, Kevin M & Topel, Robert H, 2002. "Estimation and Inference in Two-Step Econometric Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 88-97, January.
    15. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 1-54 National Bureau of Economic Research, Inc.
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