Insider Trading Laws, Learning and Firm Valuation: A Global Perspective
35 Pages Posted: 17 Aug 2013 Last revised: 14 Nov 2015
Date Written: August 15, 2013
We argue that a country’s institutional setting can affect investor learning and thereby stock valuation and market stability. For a global sample of firms we find that the speed with which analyst forecast errors decline and the speed with which M/B valuation attains its equilibrium value with progression in a firm’s age improves with active insider trading law enforcement. This effect is more pronounced among capital markets with better regulatory infrastructure based on World Governance Indicators (WGI) index. We also provide updated insider trading law enactment and enforcement dates (up to 2013) to Bhattacharya and Daouk (2002), of which their survey covered up to March 1999.
Keywords: Market to book ratio, learning, capital market environment
JEL Classification: G12, G14, G15
Suggested Citation: Suggested Citation