Insider Trading and Innovation

62 Pages Posted: 12 Oct 2015 Last revised: 3 Nov 2015

See all articles by Ross Levine

Ross Levine

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER)

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Lai Wei

Lingnan University - Department of Finance and Insurance

Multiple version iconThere are 2 versions of this paper

Date Written: October 2015

Abstract

This paper assesses whether legal systems that protect outside investors from corporate insiders increase or decrease the rate of technological innovation. Based on over 75,000 industry-country-year observations across 94 economies from 1976 to 2006, we find that enforcing insider trading laws spurs innovation—as measured by patent intensity, scope, impact, generality, and originality. Consistent with theories that insider trading slows innovation by impeding the valuation of innovative activities, the relationship between enforcing insider trading laws and innovation is much larger in industries that are naturally innovative and opaque, and equity issuances also rise much more in these industries after a country starts enforcing its insider trading laws.

Suggested Citation

Levine, Ross Eric and Lin, Chen and Wei, Lai, Insider Trading and Innovation (October 2015). NBER Working Paper No. w21634. Available at SSRN: https://ssrn.com/abstract=2672747

Ross Eric Levine (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Chen Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Lai Wei

Lingnan University - Department of Finance and Insurance ( email )

8 Castle Peak Road
Lingnan University
Hong Kong, New Territories
China

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