Private Regulation of Insider Trading in the Shadow of Lax Public Enforcement: Evidence from Canadian Firms
Laura Nyantung Beny
University of Michigan Law School
Anita I. Anand
University of Toronto - Faculty of Law
January 14, 2008
Harvard Business Law Review, Vol. 3, No. 2, 2013
2nd Annual Conference on Empirical Legal Studies Paper
U of Michigan Law & Economics, Olin Working Paper No. 07-019
Like U.S. firms, many Canadian firms voluntarily restrict trading by corporate insiders beyond the requirements of insider trading laws (i.e., super-compliance). Thus, we aim to understand the determinants of firms' private insider trading policies (ITPs), which are quasi-contractual devices. Based on the assumption that firms that face greater costs from insider trading (or greater benefits from restricting insider trading) ought to be more inclined than other firms to adopt more stringent ITPs, we develop several testable hypotheses. We test our hypotheses using data from a sample of firms included in the Toronto Stock Exchange/Standard and Poor's (TSX/S&P) Index. Our empirical results suggest that Canadian firms do not randomly restrict insider trading, but rather do so predictably and with a predictable level of intensity, suggesting that some firms wish to control insider trading to enhance corporate performance. Our most robust finding is that firms with a greater prevalence of controlling shareholders are more likely to have adopted a super-compliant ITP than firms with fewer such shareholders, implying that influential shareholders may oppose insider trading and challenging the claim that private restrictions of insider trading would not arise in the absence of insider trading laws.
Number of Pages in PDF File: 42
Keywords: insider trading, private regulation, public enforcement, securities laws, optional corporate rules, extra-territorial effect of U.S. laws
JEL Classification: K00, K22, G38, M14, N20, P50Accepted Paper Series
Date posted: July 5, 2007 ; Last revised: February 20, 2015
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