More insiders, more insider trading: Evidence from private-equity buyouts
AbstractPrior theoretical research has found that, in the absence of regulation, a greater number of insiders leads to more insider trading. We show that optimal regulation features detection and punishment policies that become stricter as the number of insiders increases, reducing insider trading in equilibrium. We construct measures of the likelihood of insider activity prior to bid announcements of private-equity buyouts during the period 2000-2006 and relate these to the number of financing participants. Suspicious stock and options activity is associated with more equity participants, while suspicious bond and CDS activity is associated with more debt participants -- consistent with models of limited competition among insiders but inconsistent with our model of optimal regulation.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Financial Economics.
Volume (Year): 98 (2010)
Issue (Month): 3 (December)
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Web page: http://www.elsevier.com/locate/inca/505576
Asymmetric information LBO Private equity Regulation;
Other versions of this item:
- Acharya, Viral V & Johnson, Tim, 2007. "More Insiders, More Insider Trading: Evidence from Private Equity Buyouts," CEPR Discussion Papers 6622, C.E.P.R. Discussion Papers.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
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