Private Regulation of Insider Trading in the Shadow of Lax Public Enforcement: Evidence from Canadian Firms

42 Pages Posted: 5 Jul 2007 Last revised: 20 Feb 2015

Laura Nyantung Beny

University of Michigan Law School

Anita I. Anand

University of Toronto - Faculty of Law

Date Written: January 14, 2008

Abstract

Like U.S. firms, many Canadian firms voluntarily restrict trading by corporate insiders beyond the requirements of insider trading laws (i.e., super-compliance). Thus, we aim to understand the determinants of firms' private insider trading policies (ITPs), which are quasi-contractual devices. Based on the assumption that firms that face greater costs from insider trading (or greater benefits from restricting insider trading) ought to be more inclined than other firms to adopt more stringent ITPs, we develop several testable hypotheses. We test our hypotheses using data from a sample of firms included in the Toronto Stock Exchange/Standard and Poor's (TSX/S&P) Index. Our empirical results suggest that Canadian firms do not randomly restrict insider trading, but rather do so predictably and with a predictable level of intensity, suggesting that some firms wish to control insider trading to enhance corporate performance. Our most robust finding is that firms with a greater prevalence of controlling shareholders are more likely to have adopted a super-compliant ITP than firms with fewer such shareholders, implying that influential shareholders may oppose insider trading and challenging the claim that private restrictions of insider trading would not arise in the absence of insider trading laws.

Keywords: insider trading, private regulation, public enforcement, securities laws, optional corporate rules, extra-territorial effect of U.S. laws

JEL Classification: K00, K22, G38, M14, N20, P50

Suggested Citation

Beny, Laura Nyantung and Anand, Anita I., Private Regulation of Insider Trading in the Shadow of Lax Public Enforcement: Evidence from Canadian Firms (January 14, 2008). U of Michigan Law & Economics, Olin Working Paper No. 07-019; Harvard Business Law Review, Vol. 3, No. 2, 2013; 2nd Annual Conference on Empirical Legal Studies Paper; U of Michigan Law & Economics, Olin Working Paper No. 07-019. Available at SSRN: https://ssrn.com/abstract=1013482 or http://dx.doi.org/10.2139/ssrn.1013482

Laura Nyantung Beny (Contact Author)

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States

Anita I. Anand

University of Toronto - Faculty of Law ( email )

78 and 84 Queen's Park
Toronto, Ontario M5S 2C5
Canada

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