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Corruption and insider trading

Author

Listed:
  • Kyriacou, Kyriacos
  • Liu, Siming
  • Mase, Bryan

Abstract

We investigate firm corruption in China by extracting a measure of corruption from published financial statements and use this to demonstrate that corruption impacts the trading decisions of insiders. Specifically, we show that insiders in firms that are more corrupt trade more aggressively, and they are more willing to trade on their private information as evidenced by the increased informativeness of their trades, in respect of both purchases and sales. This link between firm corruption and trade informativeness is robust to the inclusion of a number of factors that are known to influence the informativeness of such trades, including trade characteristics, insider characteristics and the firm's information environment. We also consider the effect of the appointment of a new CEO or Chair. Overall, corruption related trade informativeness holds consistently for both purchases and sales. Finally, we show that this measure of corruption is robust to the inclusion of several alternative indicators of corporate misconduct.

Suggested Citation

  • Kyriacou, Kyriacos & Liu, Siming & Mase, Bryan, 2024. "Corruption and insider trading," Journal of Corporate Finance, Elsevier, vol. 89(C).
    • Handle: RePEc:eee:corfin:v:89:y:2024:i:c:s0929119924001160
    DOI: 10.1016/j.jcorpfin.2024.102654
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    Keywords

    Corruption; Insider trading; Entertainment and travel costs (ETC); Abnormal returns; Stochastic frontier analysis;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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