Political Connections and Insider Trading
35 Pages Posted: 30 Sep 2016 Last revised: 3 Dec 2016
Date Written: August 30, 2016
This paper investigates whether political connections aﬀect individuals’ propensity to engage in illegal activities in ﬁnancial markets. 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, relative to that of other non-connected directors before and after the election. We ﬁnd that after the election, insider purchases by connected directors experience larger abnormal returns and that connected directors are more likely not to comply with trading disclosure requirements and to trade closer to major corporate events.
Keywords: Insider Trading, Politics of Financial Markets, Securities Regulation
JEL Classification: G14, G18, G38, K22
Suggested Citation: Suggested Citation