Contractual restrictions on insider trading: a welfare analysis
AbstractThis paper analyzes the welfare effects of permitting firms to negotiate contractually the right to allow corporate insiders to trade shares in the firm on private information. A computational framework is employed to (i) analyze formally the effects of insider trading on managerial investment choice, the informational efficiency of stock prices, and the welfare of all investor types; and (ii) examine the effectiveness of various compensation schemes (such as stock and insider trading rights) to mitigate conflicts of interest between managers and shareholders. I show that shareholders will typically choose not to grant insider trading rights to managers. This decision is socially optimal.
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Bibliographic InfoArticle provided by Springer in its journal Economic Theory.
Volume (Year): 18 (2001)
Issue (Month): 1 ()
Note: Received: September 23, 2000; revised version: December 12, 2000
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Web page: http://link.springer.de/link/service/journals/00199/index.htm
Find related papers by JEL classification:
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
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- Robert McGee, 2010. "Analyzing Insider Trading from the Perspectives of Utilitarian Ethics and Rights Theory," Journal of Business Ethics, Springer, vol. 91(1), pages 65-82, January.
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