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Dividend initiations, regulatory reforms, and institutional monitoring of insider trading: Evidence from India

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  • Babu, A. Sarath
  • Chaturvedula, Chakrapani
  • Rastogi, Nikhil
  • Reddy, K. Sriharsha

Abstract

Dividend initiations (DI) signal prospects but may invite insider trading via pre-announcement leaks, particularly in weak enforcement environments. Using 650 DI events from India (2002–2024), we find positive cumulative abnormal returns (CARs) signalling such activity. Foreign Institutional Investors (FIIs) ownership curbs CARs more than Domestic Institutional Investors (DIIs) pre-reform, revealing an inverted U dynamic where FII monitoring peaks under weak enforcement but wanes post-Prohibition of Insider Trading Regulations (PITR)- 2015 due to substitution, while DIIs remain muted. Our results underscore the reforms' independent effectiveness and diminished dependence on foreign monitoring, guiding Securities and Exchange Board of India (SEBI) towards strengthening domestic institutional capabilities.

Suggested Citation

  • Babu, A. Sarath & Chaturvedula, Chakrapani & Rastogi, Nikhil & Reddy, K. Sriharsha, 2026. "Dividend initiations, regulatory reforms, and institutional monitoring of insider trading: Evidence from India," Economics Letters, Elsevier, vol. 259(C).
    • Handle: RePEc:eee:ecolet:v:259:y:2026:i:c:s0165176525006391
    DOI: 10.1016/j.econlet.2025.112802
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    References listed on IDEAS

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