The Social Constitution of Regulation: The Endogenization of Insider Trading Laws

Posted: 12 Dec 2012

See all articles by Zahn Bozanic

Zahn Bozanic

Ohio State University (OSU) - Fisher College of Business

Mark W. Dirsmith

Pennsylvania State University

Steven J. Huddart

Pennsylvania State University, University Park - Department of Accounting

Date Written: October 1, 2012

Abstract

Accounting research, whether founded in an economics or sociological paradigm, has generally treated regulation as an exogenous part of the environment that shapes the behavior of those who operate within it. Recently, joining those who have advanced the regulator capture hypothesis, the exogenous presumption of the regulatory framework has been challenged by institutional theorists within the sociology literature, and it has been reasoned that those regulated seek to influence the regulations applied to them to gain advantage. In effect, the actions of those regulated ‘‘endogenize’’ the regulations that gird them. Employing this emerging strand of institutional theory research, we probe efforts to ‘‘endogenize’’ the Securities and Exchange Commission’s (SEC) regulation of insider trading. More specifically, applying both latent and manifest content analyses, we examine archival material relating to the development of insider trading regulations, focusing in particular on the social negotiation of the SEC’s Rule 10b5-1, which prohibits company officers from trading in their company’s stock while in ‘‘knowing possession’’ of material, nonpublic information. Our results suggest that those regulated by 10b5-1 effectively influenced this regulation (viz., by way of successfully advocating for an affirmative defense provided for so-called ‘‘planned trades’’). Our analysis suggests that endogenization is an on-going, recursive process marked by moves and counter-moves among contending factions. Implications are explored.

Keywords: Insider trading, institutional theory, endogenous regulation, linguistic content analysis

JEL Classification: G18, G28, G32, G38, J33, K23, M41

Suggested Citation

Bozanic, Zahn and Dirsmith, Mark W. and Huddart, Steven J., The Social Constitution of Regulation: The Endogenization of Insider Trading Laws (October 1, 2012). Accounting, Organizations and Society, Vol. 37, No. 7, 2012. Available at SSRN: https://ssrn.com/abstract=2188575

Zahn Bozanic (Contact Author)

Ohio State University (OSU) - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Mark W. Dirsmith

Pennsylvania State University ( email )

University Park, PA 16802-3306
United States
814-865-3901 (Phone)
814-863-8393 (Fax)

Steven J. Huddart

Pennsylvania State University, University Park - Department of Accounting ( email )

University Park, PA 16802-3603
United States
814-863-0448 (Phone)

HOME PAGE: http://directory.smeal.psu.edu/sjh11

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