IDEAS home Printed from https://ideas.repec.org/a/oup/jleorg/v13y1997i2p287-318.html

Insider Trading and the Problem of Corporate Agency

Author

Listed:
  • Noe, Thomas H

Abstract

This article models an economy in which managers, whose efforts affect firm performance, are able to make "inside" trades on claims whose value is also dependent on firm performance it is shown that insider trading opportunities are a substitute for effort-assuring compensation packages. Insider-trading opportunities produce only partial effort incentives. However, they are sometimes less expensive incentive-alignment devices than effort-assuring compensation contracts, which may require payments to the manager in excess of reservation levels. Because some of the increase in value from permitting trade comes not from increased output but rather from the reduction in managerial rents, shareholders have an incentive to permit insider trade even when preventing managerial trade and paying effort-assuring compensation to managers produces greater output. Copyright 1997 by Oxford University Press.

Suggested Citation

  • Noe, Thomas H, 1997. "Insider Trading and the Problem of Corporate Agency," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 13(2), pages 287-318, October.
    • Handle: RePEc:oup:jleorg:v:13:y:1997:i:2:p:287-318
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a
    for a similarly titled item that would be available.

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zabojnik, Jan, 2014. "Stock-based Compensation Plans and Employee Incentives," Queen's Economics Department Working Papers 274650, Queen's University - Department of Economics.
    2. P. J. Engelen & L. Liedekerke, 2006. "An Ethical Analysis of Regulating Insider Trading," Working Papers 06-05, Utrecht School of Economics.
    3. Marius Cristian Milos & Laura Raisa Milos, 2017. "Regulation, Insider Trading And Stock Market Reaction. What Do We Know?," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 1, pages 174-179, December.
    4. Wei Zhang & Steven F. Cahan & Arthur C. Allen, 2005. "Insider Trading and Pay‐Performance Sensitivity: An Empirical Analysis," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(9‐10), pages 1887-1919, November.
    5. Maug, Ernst, 2002. "Insider trading legislation and corporate governance," European Economic Review, Elsevier, vol. 46(9), pages 1569-1597, October.
    6. Chih-Jen Huang, 2010. "The joint decision to manage earnings through discretionary accruals and asset sales around insider trading: Taiwan evidence," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 34(3), pages 308-325, July.
    7. Hu, Jie & Noe, Thomas H., 2001. "Insider trading and managerial incentives," Journal of Banking & Finance, Elsevier, vol. 25(4), pages 681-716, April.
    8. Dewally, Michaël & Peck, Sarah W., 2010. "Upheaval in the boardroom: Outside director public resignations, motivations, and consequences," Journal of Corporate Finance, Elsevier, vol. 16(1), pages 38-52, February.
    9. Leonard F.S. Wang & Ya‐Chin Wang, 2010. "Stackelberg real‐leader in an insider trading model," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 27(1), pages 30-46, March.
    10. Cline, Brandon N. & Williamson, Claudia R. & Xiong, Haoyang, 2021. "Culture and the regulation of insider trading across countries," Journal of Corporate Finance, Elsevier, vol. 67(C).
    11. Chang, Millicent & Watson, Iain, 2015. "Delayed disclosure of insider trades: Incentives for and indicators of future performance?," Pacific-Basin Finance Journal, Elsevier, vol. 35(PA), pages 182-197.
    12. Laura Beny, 2006. "Do Investors Value Insider Trading Laws? International Evidence," William Davidson Institute Working Papers Series wp837, William Davidson Institute at the University of Michigan.
    13. Wei Zhang & Steven F. Cahan & Arthur C. Allen, 2005. "Insider Trading and Pay-Performance Sensitivity: An Empirical Analysis," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(9-10), pages 1887-1919.
    14. Jie Hu & Thomas H. Noe, 1997. "The insider trading debate," Economic Review, Federal Reserve Bank of Atlanta, vol. 82(Q 4), pages 34-45.
    15. Jie Hu & Thomas H. Noe, 1997. "Insider trading, costly monitoring, and managerial incentives," FRB Atlanta Working Paper 97-2, Federal Reserve Bank of Atlanta.
    16. Chao Lu & Xuetong Zhao & Jingwen Dai, 2018. "Corporate Social Responsibility and Insider Trading: Evidence from China," Sustainability, MDPI, vol. 10(9), pages 1-17, September.
    17. Brenner, Steffen, 2011. "On the irrelevance of insider trading for managerial compensation," European Economic Review, Elsevier, vol. 55(2), pages 293-303, February.
    18. Bebchuk, Lucian Arye & Jolls, Christine, 1999. "Managerial Value Diversion and Shareholder Wealth," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(2), pages 487-502, July.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:jleorg:v:13:y:1997:i:2:p:287-318. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://academic.oup.com/jleo .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.