Abstract

http://ssrn.com/abstract=2103523
 
 

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Internal Corporate Governance and 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


Korea Advanced Institute of Science and Technology (KAIST)

July 14, 2013


Abstract:     
This paper examines the role of internal corporate governance in limiting insiders’ ability to profit from their information advantage. Using various measures that capture the quality of a firm’s internal governance, we find that compared with insiders of poorer-governed firms, those of better-governed firms earn significantly smaller abnormal profits from their sales transactions, but not from their purchase transactions. We also find that these asymmetric effects of internal governance on the profitability of insider trading are stronger for firms with more monitoring needs. Moreover, better-governed firms are more likely to place ex-ante preventive measures, such as voluntary insider trading policies, to restrict insider trading and take ex-post disciplinary actions against CEOs who earn large abnormal profits from their insider sales transactions. We further find that good governance restricts insiders’ use of private information but not that of public information.

Number of Pages in PDF File: 61

Keywords: Internal corporate governance, Insider purchases, Insider sales, Profitability of insider trading

JEL Classification: G34, J33, K31, M52

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Date posted: July 11, 2012 ; Last revised: July 15, 2013

Suggested Citation

Dai, Lili and Fu, Renhui and Kang , Jun-Koo and Lee, Inmoo, Internal Corporate Governance and Insider Trading (July 14, 2013). 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 )
No.535 Fahuazhen Road
Shanghai Jiao Tong University
Shanghai, Shanghai 200052
China
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
Korea Advanced Institute of Science and Technology (KAIST) ( email )
207-43 Cheongryangri-2dong 130-722
Seoul
Korea
Feedback to SSRN


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