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Insider Trading via the Corporation

Jesse M. Fried

Harvard Law School; European Corporate Governance Institute (ECGI)

August 2, 2012

University of Pennsylvania Law Review, Vol. 164, No. 4, 2014 (pp.. 801-839)

When a U.S. firm trades its own shares in the open market, it is subject to much less stringent trade-disclosure rules than an insider of the firm trading in those shares. Insiders owning equity in their firm thus frequently engage in indirect insider trading: having the firm buy and sell its own stock at favorable prices. Such indirect insider trading imposes substantial costs on public investors in two ways: by systematically diverting value to insiders and by causing 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 imposed on their insiders.

Number of Pages in PDF File: 39

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

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Date posted: August 2, 2012 ; Last revised: May 9, 2014

Suggested Citation

Fried, Jesse M., Insider Trading via the Corporation (August 2, 2012). University of Pennsylvania Law Review, Vol. 164, No. 4, 2014 (pp.. 801-839). Available at SSRN: https://ssrn.com/abstract=2122137 or http://dx.doi.org/10.2139/ssrn.2122137

Contact Information

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 )
B-1050 Brussels
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