A Proclivity to Cheat: How Culture Influences Illegal Insider Trading

27 Pages Posted: 15 Dec 2011 Last revised: 17 Aug 2012

See all articles by Alireza Tourani-Rad

Alireza Tourani-Rad

Auckland University of Technology - Faculty of Business & Law

Bart Frijns

Auckland University of Technology - Faculty of Business & Law

Aaron B. Gilbert

Auckland University of Technology - Faculty of Business & Law

Multiple version iconThere are 2 versions of this paper

Date Written: December 14, 2011

Abstract

We examine the role of culture on the prevalence of illegal insider trading. Recent literature suggests that decisions and actions of economic decision-makers, including CEOs and managers, are influenced by behavioural biases (Shefrin, 2007). We hypothesize that nations where individuals are more risk-averse and less individualistic engage in less illegal insider trading. We employ the uncertainty avoidance and individualism cultural dimensions of Hofstede (2001) as a proxy for culture. Using price run ups and abnormal volume data, as a proxy for illegal insider trading, from 7,853 target firms in 28 countries for the period January 1990 to August 2008, we show that uncertainty avoidance, a country-level proxy for risk aversion, is negatively related to insider trading, while individualism appears to have less connection with insider trading. Our findings suggest that law makers may need to consider cultural aspects within a country when developing insider trading laws.

Keywords: Cultural Dimensions, Insider Dealing, Price Run-Ups

JEL Classification: K22, G15, G38

Suggested Citation

Tourani-Rad, Alireza and Frijns, Bart and Gilbert, Aaron B., A Proclivity to Cheat: How Culture Influences Illegal Insider Trading (December 14, 2011). 2012 Financial Markets & Corporate Governance Conference; 25th Australasian Finance and Banking Conference 2012. Available at SSRN: https://ssrn.com/abstract=1972585 or http://dx.doi.org/10.2139/ssrn.1972585

Alireza Tourani-Rad (Contact Author)

Auckland University of Technology - Faculty of Business & Law ( email )

3 Wakefield Street
Private Bag 92006
Auckland Central 1020
New Zealand

Bart Frijns

Auckland University of Technology - Faculty of Business & Law ( email )

3 Wakefield Street
Private Bag 92006
Auckland Central 1020
New Zealand

Aaron B. Gilbert

Auckland University of Technology - Faculty of Business & Law ( email )

3 Wakefield Street
Private Bag 92006
Auckland Central 1020
New Zealand

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