Political Connections and Insider Trading
36 Pages Posted: 5 Oct 2016 Last revised: 23 Jan 2018
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Political Connections and Insider Trading
Political Connections and Insider Trading
Date Written: October 5, 2016
Abstract
This paper investigates whether political connections affect individuals’ propensity to engage in illegal activities in financial markets. We use the 2007 French presidential election as marker of change in the value of political connections, in a difference-in-differences research design. We examine the behavior of directors of publicly listed companies who are connected to the future president through campaign donations or direct friendships, relative to that of other non-connected directors, before and after the election. We uncover indirect evidence that connected directors do more illegal insider trading after the election. More precisely, we find that purchases by connected directors trigger larger abnormal returns, and that connected directors are more likely not to comply with trading disclosure requirements and to trade closer to major corporate events.
Keywords: Political Connections, White-Collar Crime, Insider Trading
JEL Classification: D72, G14, G18, G38, K22, K42
Suggested Citation: Suggested Citation