The Political Economy of Insider Trading Law and Enforcement: Law vs. Politics? International Evidence

Insider Trading Research Handbook, edited by S. Bainbridge. Elgar, Forthcoming

U of Michigan Law & Economics, Olin Working Paper No. 08-001

60 Pages Posted: 18 Mar 2002 Last revised: 24 Sep 2012

Laura Nyantung Beny

University of Michigan Law School

Date Written: August 17, 2012

Abstract

This article investigates the determinants of insider trading regulation across countries. The main finding, based on data from a cross section of countries between 1980 and 1999, is that a country’s political system – not its legal or financial system – provides the first-order explanation of its proclivity to regulate insider trading. Specifically, more democratic political systems enacted and enforced insider trading laws earlier than less democratic political systems, controlling for wealth, financial development, legal origin, and other relevant factors. In addition, left-leaning governments were relative latecomers to insider trading legislation and enforcement relative to right-leaning and centrist governments, controlling for the same factors. The article’s findings are consistent with the political theory of capital market development and inconsistent with the legal origins theory of capital market development. They also challenge theoretical claims that insider trading restrictions are market-inhibiting because the kinds of governments that appear more prone to regulate insider trading are precisely the governments that are generally thought to pursue market-promoting policies.

Keywords: insider trading regulation, political economy, law and finance, political theory of finance

Suggested Citation

Beny, Laura Nyantung, The Political Economy of Insider Trading Law and Enforcement: Law vs. Politics? International Evidence (August 17, 2012). Insider Trading Research Handbook, edited by S. Bainbridge. Elgar, Forthcoming; U of Michigan Law & Economics, Olin Working Paper No. 08-001. Available at SSRN: https://ssrn.com/abstract=304383 or http://dx.doi.org/10.2139/ssrn.304383

Laura Nyantung Beny (Contact Author)

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States

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