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The factors affecting illegal insider trading in firms with violations of GAAP

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  • Thevenot, Maya

Abstract

Consistent with the economics of crime approach, this paper finds that insider selling is decreasing in the perceived costs of potential private and public enforcement upon discovery of GAAP misstatements, and increasing in managerial private benefits as measured by the market reaction to the misstatement announcement. Additionally, insiders at fraud firms sell more on average, although the intensity of their trades is less likely to be associated with the magnitude of their private information. Further analysis suggests that managers perceive a higher cost of public enforcement in the post-Enron period.

Suggested Citation

  • Thevenot, Maya, 2012. "The factors affecting illegal insider trading in firms with violations of GAAP," Journal of Accounting and Economics, Elsevier, vol. 53(1), pages 375-390.
  • Handle: RePEc:eee:jaecon:v:53:y:2012:i:1:p:375-390
    DOI: 10.1016/j.jacceco.2011.08.002
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    References listed on IDEAS

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    Cited by:

    1. repec:spr:infosf:v:19:y:2017:i:3:d:10.1007_s10796-017-9753-3 is not listed on IDEAS
    2. Agrawal, Anup & Cooper, Tommy, 2015. "Insider trading before accounting scandals," Journal of Corporate Finance, Elsevier, vol. 34(C), pages 169-190.
    3. Lorne N. Switzer & Jun Wang, 2017. "An event based approach for quantifying the effects of securities fraud in the IT industry," Information Systems Frontiers, Springer, vol. 19(3), pages 457-467, June.

    More about this item

    Keywords

    Economics of crime; Insider trading; Enforcement risk; Restatements; Fraud;

    JEL classification:

    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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