Insider Trading via the Corporation
Jesse M. Fried
Harvard Law School; European Corporate Governance Institute (ECGI)
August 2, 2012
University of Pennsylvania Law Review, Vol. 164, No. 4, 2014 (pp.. 801-839)
When a U.S. firm trades its own shares in the open market, it is subject to much less stringent trade-disclosure rules than an insider of the firm trading in those shares. Insiders owning equity in their firm thus frequently engage in indirect insider trading: having the firm buy and sell its own stock at favorable prices. Such indirect insider trading imposes substantial costs on public investors in two ways: by systematically diverting value to insiders and by causing insiders to take steps that destroy economic value. To reduce these costs, I put forward a simple proposal: subject firms to the same trade-disclosure rules imposed on their insiders.
Number of Pages in PDF File: 39
Keywords: insider trading, corporate governance, stock buybacks, share repurchases, open market repurchases, equity issuances, at-the-market offerings, overvalued equity, payout policy, seasoned equity offerings, manipulation, real earnings management
JEL Classification: G18, G32, G34, G35, G38, K22
Date posted: August 2, 2012 ; Last revised: May 9, 2014
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