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A Proclivity to Cheat: How Culture influences Illegal Insider TradingBart FrijnsAuckland University of Technology - Faculty of Business & Law Aaron B. GilbertAuckland University of Technology - Faculty of Business & Law Alireza Tourani RadAuckland University of Technology - Faculty of Business & Law August 25, 2011 Midwest Finance Association 2012 Annual Meetings Paper Abstract: Insider trading has been subjected to increasing sanctions in many markets without completely deterring insider dealing or even, on the basis of some evidence, making it more prevalent. This suggests that other factors may impact on the prevalence of insider dealing such as culture, a system of norms and values which may enhance or undermine the laws in place. We examine the impact of culture by relating the four Hofstede (2001) cultural dimensions to the price and volume run-ups prior to a takeover announcement. Our results show that higher uncertainty avoidance, a proxy for risk aversion, deters insider dealing, although other cultural dimensions show little connection with insider trading. Our findings suggest that law makers may need to consider culture when establishing insider trading laws, specifically, stronger sanctions in low uncertainty avoiding countries.
Number of Pages in PDF File: 33 Keywords: Cultural Dimensions, Insider Dealing, Price Run-Ups JEL Classification: G34, Z10, C21 working papers seriesDate posted: September 19, 2011Suggested CitationContact Information
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