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A Comparative Empirical Investigation of Agency and Market Theories of Insider Trading

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  • Laura Beny

    (University of Michigan)

Abstract

The paper summarizes various agency cost and market theories of insider trading propounded over the course of the perennial law and economics debate over insider trading. The paper then suggests three testable hypotheses regarding the relationship between insider trading laws and several measures of financial performance. Using international data and alternative regression specifications, the paper finds that more stringent insider trading laws and enforcement are generally associated with greater ownership dispersion, greater stock price accuracy and greater stock market liquidity. This set of findings provides empirical support to theoretical arguments in favor of more stringent insider trading legislation and enforcement.

Suggested Citation

  • Laura Beny, "undated". "A Comparative Empirical Investigation of Agency and Market Theories of Insider Trading," University of Michigan John M. Olin Center for Law & Economics Working Paper Series umichlwps-1003, University of Michigan John M. Olin Center for Law & Economics.
    • Handle: RePEc:bep:uomlwp:umichlwps-1003
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    File URL: http://law.bepress.com/cgi/viewcontent.cgi?article=1003&context=umichlwps
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    References listed on IDEAS

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    Cited by:

    1. Kan Li & Randall Morck & Fan Yang & Bernard Yeung, 2004. "Firm-Specific Variation and Openness in Emerging Markets," The Review of Economics and Statistics, MIT Press, vol. 86(3), pages 658-669, August.
    2. Art Durnev & Kan Li & Randall Mørck & Bernard Yeung, 2004. "Capital markets and capital allocation: Implications for economies in transition," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 12(4), pages 593-634, December.
    3. Art Durnev & Amrita Nain, "undated". "The Unanticipated Effects of Insider Trading Regulation," American Law & Economics Association Annual Meetings 1023, American Law & Economics Association.
    4. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer, 2006. "What Works in Securities Laws?," Journal of Finance, American Finance Association, vol. 61(1), pages 1-32, February.
    5. Juan Jose Cruces & Enrique L. Kawamura, 2005. "Insider Trading and Corporate Governance in Latin America: A Sequential Trade Model Approach," Working Papers 86, Universidad de San Andres, Departamento de Economia, revised Dec 2005.
    6. Lopez-De-Silanes,Florencio, 2004. "A survey of securities laws and enforcement," Policy Research Working Paper Series 3405, The World Bank.
    7. 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.
    8. Kusnadi, Yuanto, 2015. "Insider trading restrictions and corporate risk-taking," Pacific-Basin Finance Journal, Elsevier, vol. 35(PA), pages 125-142.
    9. Juan Cruces & Enrique Kawamura, 2005. "Insider Trading and Corporate Governance in Latin America," Research Department Publications 3206, Inter-American Development Bank, Research Department.
    10. Maug, Ernst, 2002. "Insider trading legislation and corporate governance," European Economic Review, Elsevier, vol. 46(9), pages 1569-1597, October.
    11. Debby Van Geyt & Philippe Van Cauwenberge & Heidi Vander Bauwhede, 2013. "The impact of the financial crisis on insider trading profitability in Belgium," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 14(2), pages 364-385, April.
    12. Juan Cruces & Enrique Kawamura, 2005. "Transacciones basadas en información privilegiada y conducción empresarial en América Latina," Research Department Publications 3207, Inter-American Development Bank, Research Department.
    13. Neupane, Biwesh & Thapa, Chandra & Marshall, Andrew & Neupane, Suman, 2021. "Mimicking insider trades," Journal of Corporate Finance, Elsevier, vol. 68(C).

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