The Effects of Insider Trading Restrictions: Evidence from Historical Dividend Initiations and Omissions

52 Pages Posted: 17 Mar 2009 Last revised: 17 Nov 2017

See all articles by Joseph K. Tanimura

Joseph K. Tanimura

Berkeley Research Group, LLC

Eric W. Wehrly

Western Washington University

Date Written: December 1, 2010

Abstract

We investigate whether insider trading restrictions had their intended effects during the 1960s and 1970s. We do so by examining insider trading and stock market behavior prior to dividend initiations and omissions announced between 1935 and 1974. Contrary to existing research and commentary, we show that restrictions had meaningful effects. During the 1960s and 1970s, insiders sold less frequently prior to dividend omissions, and the average profitability of insider trades declined. In addition, the positive (negative) stock price runup prior to dividend initiations (omissions) decreased after 1961. The results provide some vindication for the SEC’s adjudicative approach toward insider trading.

Keywords: Insider trading, dividend initiations, dividend omissions

JEL Classification: G14, G18, K22, N22

Suggested Citation

Tanimura, Joseph K. and Wehrly, Eric W., The Effects of Insider Trading Restrictions: Evidence from Historical Dividend Initiations and Omissions (December 1, 2010). Journal of Financial Research, 35: 1–28. doi:10.1111/j.1475-6803.2011.01307.x, Available at SSRN: https://ssrn.com/abstract=1359679

Joseph K. Tanimura (Contact Author)

Berkeley Research Group, LLC ( email )

2029 Century Park East, Suite 1250
Los Angeles, CA 90067
United States

Eric W. Wehrly

Western Washington University ( email )

516 High Street
Bellingham, WA 98225
United States
3606504820 (Phone)

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