Abstract

http://ssrn.com/abstract=1515005
 
 

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More Insiders, More Insider Trading: Evidence from Private Equity Buyouts


Viral V. Acharya


New York University - Leonard N. Stern School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER); New York University (NYU) - Department of Finance

Timothy C. Johnson


University of Illinois at Urbana-Champaign

October 1, 2009

Journal of Financial Economics, Forthcoming

Abstract:     
This paper studies how insider trading intensity is affected by the joint effects of competition and regulation. Prior theoretical research has found that, in the absence of regulation, more insiders leads to more insider trading. We show that optimal regulation, however, features detection and punishment policies that get stricter as the number of insiders increases, giving rise to lower insider trading in equilibrium. We construct measures of the likelihood of insider activity prior to bid announcements of private equity buyouts during the period 2000-2006 and relate these to the number of financing participants. We find that suspicious stock and options activity is associated with more equity participants, while suspicious activity in bond and CDS markets is associated with more debt participants. These results may be consistent with models of limited competition among insiders, but are inconsistent with our model of optimal regulation.

Number of Pages in PDF File: 57

Keywords: asymmetric information, LBO, private equity, regulation

JEL Classification: D82, G14, K42

Accepted Paper Series


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Date posted: November 29, 2009  

Suggested Citation

Acharya, Viral V. and Johnson, Timothy C., More Insiders, More Insider Trading: Evidence from Private Equity Buyouts (October 1, 2009). Journal of Financial Economics, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1515005

Contact Information

Viral V. Acharya (Contact Author)
New York University - Leonard N. Stern School of Business ( email )
44 West 4th Street
New York, NY NY 10012
United States
HOME PAGE: http://pages.stern.nyu.edu/~sternfin/vacharya/public_html/~vacharya.htm
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
New York University (NYU) - Department of Finance
Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
Timothy C. Johnson
University of Illinois at Urbana-Champaign ( email )
601 E John St
Champaign, IL 61820
United States
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