Abstract

http://ssrn.com/abstract=2103523
 
 

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Corporate Governance and the Profitability of Insider Trading


Lili Dai


Australian National University (ANU)

Renhui Fu


Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management

Jun-Koo Kang


Nanyang Technological University (NTU) - Nanyang Business School

Inmoo Lee


KAIST College of Business

August 22, 2016

Journal of Corporate Finance, Forthcoming

Abstract:     
This paper examines the influence of corporate governance systems on insiders’ ability to profit from their information advantage and the ways through which corporate governance systems influence such ability. We find that corporate governance significantly reduces the profitability of insider sales but not that of insider purchases. Given that sales involve greater legal risk than purchases, the results suggest that well-governed firms restrict informed insider trading mainly to reduce legal risk. We also find that better-governed firms reduce the profitability of insider sales by increasing the likelihood of adopting ex-ante preventive measures (e.g., voluntary insider trading restriction policies), implementing such measures more effectively, and taking ex-post disciplinary actions more actively. These results highlight how better-governed firms are able to restrict insiders from exploiting private information.

Number of Pages in PDF File: 53

Keywords: Corporate governance; Insider purchases; Insider sales; Profitability of insider trading; Legal risk

JEL Classification: G34, K22


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Date posted: July 11, 2012 ; Last revised: August 23, 2016

Suggested Citation

Dai, Lili and Fu, Renhui and Kang , Jun-Koo and Lee, Inmoo, Corporate Governance and the Profitability of Insider Trading (August 22, 2016). Journal of Corporate Finance, Forthcoming. Available at SSRN: http://ssrn.com/abstract=2103523 or http://dx.doi.org/10.2139/ssrn.2103523

Contact Information

Lili Dai
Australian National University (ANU) ( email )
Canberra, Australian Capital Territory 2601
Australia
Renhui Fu (Contact Author)
Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management ( email )
1954 Huashan Road
Shanghai Jiao Tong University
Shanghai, Shanghai 200030
China
+862152301575 (Phone)
Jun-Koo Kang
Nanyang Technological University (NTU) - Nanyang Business School ( email )
Nanyang Avenue, Block S3-01b-54
Singapore, 639798
Singapore
(+65) 6790-5662 (Phone)
(+65) 6791-3697 (Fax)
HOME PAGE: http://www.nbs.ntu.edu.sg/nbs_corporate/divisions/bnf/index.asp
Inmoo Lee
KAIST College of Business ( email )
85 Hoegiro Dongdaemun-Gu
Seoul 130-722
Korea, Republic of (South Korea)

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