The Political Economy of Insider Trading Law and Enforcement: Law vs. Politics? International Evidence
Laura Nyantung Beny
University of Michigan Law School
August 17, 2012
Insider Trading Research Handbook, edited by S. Bainbridge. Elgar, Forthcoming
U of Michigan Law & Economics, Olin Working Paper No. 08-001
This article investigates the determinants of insider trading regulation across countries. The main finding, based on data from a cross section of countries between 1980 and 1999, is that a country’s political system – not its legal or financial system – provides the first-order explanation of its proclivity to regulate insider trading. Specifically, more democratic political systems enacted and enforced insider trading laws earlier than less democratic political systems, controlling for wealth, financial development, legal origin, and other relevant factors. In addition, left-leaning governments were relative latecomers to insider trading legislation and enforcement relative to right-leaning and centrist governments, controlling for the same factors. The article’s findings are consistent with the political theory of capital market development and inconsistent with the legal origins theory of capital market development. They also challenge theoretical claims that insider trading restrictions are market-inhibiting because the kinds of governments that appear more prone to regulate insider trading are precisely the governments that are generally thought to pursue market-promoting policies.
Number of Pages in PDF File: 60
Keywords: insider trading regulation, political economy, law and finance, political theory of finance
Date posted: March 18, 2002 ; Last revised: September 24, 2012
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