What Governmental Insider Trading Teaches Us About Corporate Insider Trading
Sung Hui Kim
UCLA School of Law
September 24, 2012
RESEARCH HANDBOOK ON INSIDER TRADING, Stephen M. Bainbridge, ed., Edward Elgar, 2013
UCLA School of Law, Law-Econ Research Paper No. 12-17
This book chapter explores a curious distinction that Henry G. Manne made in his influential 1966 book, Insider Trading and The Stock Market. On the one hand, Professor Manne defended corporate insider trading because of its potential to increase share price accuracy and its usefulness as a compensation tool for entrepreneurial innovations. On the other hand, Professor Manne denounced the practice of governmental insider trading, seeing no good reason to compensate government officials on the side and warning against “the ease with which inside information can be utilized as a payoff device.” This chapter argues that such a bifurcated position is unstable. It contends that just as governmental insider trading should be viewed as a form of public corruption, corporate insider trading should be viewed as a form of corruption in the private sector. Moreover, if one examines the reasons why public corruption in the form of governmental insider trading is normatively problematic, one sees that similar reasons apply to private corruption in the form of corporate insider trading. Thus, if one rejects governmental insider trading, one has good reason to reject corporate insider trading as well.
Keywords: governmental insider trading, legislator insider trading, congressional insider trading, corporate insider trading, Henry Manne, public corruption, private corruption, private gain from public office, fiduciary, fairness, legitimacy
Date posted: September 24, 2012
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