Should Insider Trading Be Prohibited When Share Repurchases are Allowed?

Posted: 27 Oct 2008  

Andrea M. Buffa

Boston University

Giovanna Nicodano

University of Turin - Department of Economics and Statistics; Collegio Carlo Alberto

Multiple version iconThere are 2 versions of this paper

Date Written: 2008

Abstract

This paper considers share repurchases as the way long-term shareholders preserve their ability to use corporate information for speculative purposes when insider trading regulation is enforced. This use of corporate information increases the adverse selection losses of short-term shareholders. Thus, buy-back programs reduce their incentive to invest in stocks that back the most productive technology, leading to a socially inefficient equilibrium. It follows that insider trading should not be banned when share repurchases are allowed. More generally, the paper argues that the regulation of insider trading and repurchases can not be considered in isolation, and analyzes their interplay.

Keywords: G18, G14, D82, K22

Suggested Citation

Buffa, Andrea M. and Nicodano, Giovanna, Should Insider Trading Be Prohibited When Share Repurchases are Allowed? (2008). Review of Finance, Vol. 12, Issue 4, pp. 735-765, 2008. Available at SSRN: https://ssrn.com/abstract=1289176 or http://dx.doi.org/rfn009

Andrea M. Buffa (Contact Author)

Boston University ( email )

Questrom School of Business
595 Commonwealth Avenue
Boston, MA 02215
United States

HOME PAGE: http://sites.google.com/site/andreabuffa/

Giovanna Nicodano

University of Turin - Department of Economics and Statistics ( email )

Turin, 10134
Italy

HOME PAGE: http://www.carloalberto.org/people/faculty/fellows/nicodano/

Collegio Carlo Alberto ( email )

via Real Collegio 30
Moncalieri, Torino 10024
Italy
390116705006 (Phone)

HOME PAGE: http://www.carloalberto.org/people/nicodano/

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