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Political Connections and Insider Trading

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This paper investigates whether political connections affect individuals’ propensity to engage in illegal activities in financial markets. We use the 2007 French presidential election as marker of change in the value of political connections, in a difference-in-differences research design. We examine the behavior of directors of publicly listed companies who are connected to the future president through campaign donations or direct friendships, relative to that of other non-connected directors, before and after the election. We uncover indirect evidence that connected directors do more illegal insider trading after the election. More precisely, we find that purchases by connected directors trigger larger abnormal returns, and that connected directors are more likely not to comply with trading disclosure requirements and to trade closer to major corporate events.

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File URL: http://www.amse-aixmarseille.fr/sites/default/files/_dt/2012/wp_2016_-_nr_35.pdf
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Paper provided by Aix-Marseille School of Economics, Marseille, France in its series AMSE Working Papers with number 1635.

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Length: 36 pages
Date of creation: Oct 2016
Handle: RePEc:aim:wpaimx:1635
Contact details of provider: Web page: http://www.amse-aixmarseille.fr/en

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  1. Coulomb, Renaud & Sangnier, Marc, 2014. "The impact of political majorities on firm value: Do electoral promises or friendship connections matter?," Journal of Public Economics, Elsevier, vol. 115(C), pages 158-170.
  2. Anna Aizer & Joseph J. Doyle, 2015. "Juvenile Incarceration, Human Capital, and Future Crime: Evidence from Randomly Assigned Judges," The Quarterly Journal of Economics, Oxford University Press, vol. 130(2), pages 759-803.
  3. Eitan Goldman & Jörg Rocholl & Jongil So, 2013. "Politically Connected Boards of Directors and The Allocation of Procurement Contracts," Review of Finance, European Finance Association, vol. 17(5), pages 1617-1648.
  4. Lance Lochner & Enrico Moretti, 2004. "The Effect of Education on Crime: Evidence from Prison Inmates, Arrests, and Self-Reports," American Economic Review, American Economic Association, vol. 94(1), pages 155-189, March.
  5. Fidrmuc, Jana P. & Korczak, Adriana & Korczak, Piotr, 2013. "Why does shareholder protection matter for abnormal returns after reported insider purchases and sales?," Journal of Banking & Finance, Elsevier, vol. 37(6), pages 1915-1935.
  6. Paolo Pinotti, 2015. "Immigration enforcement and crime," BAFFI CAREFIN Working Papers 1502, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
  7. Anderson, David A, 1999. "The Aggregate Burden of Crime," Journal of Law and Economics, University of Chicago Press, vol. 42(2), pages 611-642, October.
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