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Short Memories? The Impact of SEC Enforcement on Insider Leakage

Author

Listed:
  • Ghoshal, S.
  • Bengtzen, M.
  • Roberts, S.

Abstract

We study the impact of SEC enforcement on information leakage by corporate insiders. We find, for the first time, that SEC enforcement has a significant and immediate deterrent effect on insider leakage. Furthermore, enforcement actions undertaken after a long period of SEC enforcement inactivity display a more significant effect on leakage, consistent with predictions that insiders adapt their behavior depending on how active they perceive the regulator to be. We also study SEC escalations in sanctioning and find that they have a particularly notable deterrent effect, changing insider leakage behavior for approximately 24 months. Our results suggest that capital markets regulators need to intervene on a regular basis in order to maintain deterrence of undesirable behavior.

Suggested Citation

  • Ghoshal, S. & Bengtzen, M. & Roberts, S., 2020. "Short Memories? The Impact of SEC Enforcement on Insider Leakage," Journal of Law, Finance, and Accounting, now publishers, vol. 5(2), pages 273-305, September.
    • Handle: RePEc:now:jnllfa:108.00000048
    DOI: 10.1561/108.00000048
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    More about this item

    Keywords

    Time-series models; financial econometrics; illegal behavior and; the enforcement of law; nonparametric methods;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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