Political Connections and Insider Trading

30 Pages Posted: 4 Jun 2016

See all articles by Thomas Bourveau

Thomas Bourveau

Columbia University - Columbia Business School, Accounting, Business Law & Taxation

Renaud Coulomb

University of Melbourne

Marc Sangnier

Aix-Marseille University - Aix-Marseille School of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: December 2, 2015

Abstract

This paper investigates whether directors' political connections affect their behavior in financial markets. We conjecture that directors feel protected by their political connections, which translates in lower perceived enforcement probability. We use the French $2007$ presidential election as a plausibly exogenous change in the value of political connections in a difference-in-differences research design. Specifically, we examine the behavior of directors of publicly listed companies that are connected to the future President --- through campaign donations or direct friendships --- compared to other directors before and after the election. We find larger two-day cumulative abnormal returns around the disclosure of purchases by politically-connected directors, suggesting that they are more likely to trade on private material information. Furthermore, we observe that the probability to break the disclosure time limit increased significantly for connected directors after the election. Overall, our results indicate that politically-connected directors have a sense of impunity and engage in fraudulent behavior.

Keywords: Insider Trading, Politics of Financial Markets, Securities Regulation

JEL Classification: G14, G18, G38, K22

Suggested Citation

Bourveau, Thomas and Coulomb, Renaud and Sangnier, Marc, Political Connections and Insider Trading (December 2, 2015). Available at SSRN: https://ssrn.com/abstract=2788550 or http://dx.doi.org/10.2139/ssrn.2788550

Thomas Bourveau

Columbia University - Columbia Business School, Accounting, Business Law & Taxation ( email )

3022 Broadway
New York, NY 10027
United States

Renaud Coulomb

University of Melbourne ( email )

Melbourne, 3010
Australia

Marc Sangnier (Contact Author)

Aix-Marseille University - Aix-Marseille School of Economics ( email )

5-9 Boulevard Bourdet
Marseille, 13001
France

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