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Does Insider Trading Regulation Deter Private Information Trading? International EvidenceArt DurnevUniversity of Iowa - Henry B. Tippie College of Business Amrita NainUniversity of Iowa - Henry B. Tippie College of Business January 1, 2007 Abstract: Using a sample of 2,189 firms from 21 countries we find that, on average, stricter insider trading regulations reduce private information trading. However, for firms with high agency costs, insider trading restrictions are less effective in deterring private information trading. We suggest that controlling shareholders who are banned from trading may resort to covert expropriation of firm resources thereby reducing transparency and increasing the returns to private information trading. Consistent with this, we find that firms with higher agency costs located in countries with stricter insider trading laws have more opaque earnings and are valued lower.
Number of Pages in PDF File: 37 Keywords: Insider trading regulation, ownership wedge, private information trading, earnings opacity JEL Classification: G15, G14, G38 working papers seriesDate posted: January 15, 2007Suggested CitationContact Information
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