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Regulatory Deterrence and Registered Insider Trading: The Case of Tender Offers

Author

Listed:
  • Nasser Arshadi
  • Thomas H. Eyssell

Abstract

Empirical studies of insider trading regulation suggest that regulators have been ineffective in deterring illegal insider trading in the 1960s and 1970s. This paper investigates the impact of the passage of the Insider Trading Sanctions Act of 1984 (ITSA), which dramatically increased the potential penalties associated with insider trading. We examine both the incidence and the profitability of the transactions of registered insiders in firms which were the targets of tender offers. Our results indicate that the adoption of more stringent regulations and more active enforcement reduced both the volume and the profitability of trading by registered insiders of target firms in the weeks preceding tender offers.

Suggested Citation

  • Nasser Arshadi & Thomas H. Eyssell, 1991. "Regulatory Deterrence and Registered Insider Trading: The Case of Tender Offers," Financial Management, Financial Management Association, vol. 20(2), Summer.
    • Handle: RePEc:fma:fmanag:arshadi91
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    Cited by:

    1. Liu, Hong & Qi, Lina & Li, Zaili, 2019. "Insider trading, representativeness heuristic insider, and market regulation," The North American Journal of Economics and Finance, Elsevier, vol. 47(C), pages 48-64.
    2. Thomas H. Eyssell & James P. Reburn, 1993. "The Effects Of The Insider Trading Sanctions Act Of 1984: The Case Of Seasoned Equity Offerings," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 16(2), pages 161-170, June.
    3. Agrawal, Anup & Nasser, Tareque, 2012. "Insider trading in takeover targets," Journal of Corporate Finance, Elsevier, vol. 18(3), pages 598-625.
    4. Patrick Augustin & Menachem Brenner & Marti G. Subrahmanyam, 2019. "Informed Options Trading Prior to Takeover Announcements: Insider Trading?," Management Science, INFORMS, vol. 65(12), pages 5697-5720, December.
    5. Michael R. King, 2009. "Prebid Run‐Ups Ahead of Canadian Takeovers: How Big Is the Problem?," Financial Management, Financial Management Association International, vol. 38(4), pages 699-726, December.
    6. Persons, Obeua S., 1997. "SEC's insider trading enforcements and target firms' stock values," Journal of Business Research, Elsevier, vol. 39(3), pages 187-194, July.
    7. Jabbour, Alain R. & Jalilvand, Abolhassan & Switzer, Jeannette A., 2000. "Pre-bid price run-ups and insider trading activity: Evidence from Canadian acquisitions," International Review of Financial Analysis, Elsevier, vol. 9(1), pages 21-43, February.
    8. Tom Madison & Greg Roth & Andy Saporoschenko, 2004. "Bank Mergers and Insider Nontrading," The Financial Review, Eastern Finance Association, vol. 39(2), pages 203-229, May.
    9. Denis, David J. & Xu, Jin, 2013. "Insider trading restrictions and top executive compensation," Journal of Accounting and Economics, Elsevier, vol. 56(1), pages 91-112.
    10. Foued Hamouda & Mounira Ben Arab, 2013. "Board of directors and insider trading with share repurchase programs," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 17(2), pages 405-418, May.
    11. Podolski, Edward J. & Truong, Cameron & Veeraraghavan, Madhu, 2013. "Informed options trading prior to takeovers – Does the regulatory environment matter?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 27(C), pages 286-305.
    12. Claire Y.C. Liang & Zhenyang Tang & Xiaowei Xu, 2020. "Return Synchronicity and Insider Trading Profitability," International Review of Finance, International Review of Finance Ltd., vol. 20(4), pages 857-895, December.
    13. Schwert, G. William, 1996. "Markup pricing in mergers and acquisitions," Journal of Financial Economics, Elsevier, vol. 41(2), pages 153-192, June.
    14. Kahle, Kathleen M., 2000. "Insider trading and the long-run performance of new security issues," Journal of Corporate Finance, Elsevier, vol. 6(1), pages 25-53, March.
    15. Esther B. Del Brio & Alberto De Miguel, 2010. "Dividends and Market Signalling: an Analysis of Corporate Insider Trading," European Financial Management, European Financial Management Association, vol. 16(3), pages 480-497, June.

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