Insider Trading via the Corporation

University of Pennsylvania Law Review, 2014, Forthcoming

Harvard Law and Economics Discussion Paper No. 743

Harvard Public Law Working Paper No. 12-39

49 Pages Posted: 2 Aug 2012 Last revised: 15 Oct 2020

See all articles by Jesse M. Fried

Jesse M. Fried

Harvard Law School; European Corporate Governance Institute (ECGI)

Date Written: February 18, 2013

Abstract

A U.S. firm buying and selling its own shares in the open market can trade on inside information more easily than its own insiders because it is subject to less stringent trade- disclosure rules. Not surprisingly, insiders exploit these relatively lax rules to engage in indirect insider trading: having the firm buy and sell shares at favorable prices to boost the value of their own equity. Such indirect insider trading imposes substantial costs on public investors in two ways: by systematically diverting value to insiders and by inducing insiders to take steps that destroy economic value. To reduce these costs, I put forward a simple proposal: subject firms to the same trade-disclosure rules that are imposed on their insiders.

Keywords: insider trading, corporate governance, stock buybacks, share repurchases open market repurchases, equity issuances, at-the-market offerings, overvalued equity, payout policy, seasoned equity offerings, manipulation, real earnings management

JEL Classification: G18, G32, G34, G35, G38, K22

Suggested Citation

Fried, Jesse M., Insider Trading via the Corporation (February 18, 2013). University of Pennsylvania Law Review, 2014, Forthcoming, Harvard Law and Economics Discussion Paper No. 743, Harvard Public Law Working Paper No. 12-39, Available at SSRN: https://ssrn.com/abstract=2122137 or http://dx.doi.org/10.2139/ssrn.2122137

Jesse M. Fried (Contact Author)

Harvard Law School ( email )

1575 Massachusetts
Griswold Hall 506
Cambridge, MA 02138
United States
617-384-8158 (Phone)

HOME PAGE: http://www.law.harvard.edu/faculty/directory/10289/Fried

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
1,273
Abstract Views
12,913
rank
17,152
PlumX Metrics