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Do SEC Detections Deter Insider Trading? Evidence from Earnings Announcements

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  • Gider, Jasmin

Abstract

The paper explores the consequences of SEC detection of illegal insider trading on subsequent insider trading activities. We hypothesize that individuals with private information update their subjective probabilities of getting caught and are less likely to exploit material, non-public information about pending earnings announcements. The hypothesis is tested using data on earnings announcements of a unique hand-collected sample of 398 insider trading episodes publicly detected by the Securities and Exchange Commission (SEC). Based on a difference-in-differences analysis where we compare firms with a detection event, their industry peers and firms in remote industries, we document a statistically and economically significant deterrence effect: In the vicinity of the detection target post detection the run-ups prior to earnings announcements are significantly reduced by 0.7%.

Suggested Citation

  • Gider, Jasmin, 2014. "Do SEC Detections Deter Insider Trading? Evidence from Earnings Announcements," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100343, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc14:100343
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    More about this item

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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