Insider Trading Restrictions and Analysts' Incentives to Follow Firms

Abstract:     
Motivated by extant finance theory predicting that insider trading crowds out private information acquisition by outside investors, we use analyst following data for 100 countries for the years 1987-1998, to study whether analyst following increases following adoption of or the initial enforcement of insider trading legislation. We document that both the intensity of analyst coverage (average number of analysts covering followed firms within a country) and breadth of coverage (the proportion of domestic listed firms followed by analysts) increase after initial enforcement of insider trading laws. We find that this increase is most prominent in emerging market and non-liberalized countries.

Number of Pages in PDF File: 54

Keywords: insider trading, analyst following, enforcement of laws

JEL Classification: D82, F30, G28, G29, K42, M41

working papers series