The Impact of Stringent Insider Trading Laws and Institutional Quality on the Cost of Capital

International Review of Financial Analysis, Vol. 60, pp. 127-137, 2018

37 Pages Posted: 23 Jan 2020

See all articles by Frank Kwabi

Frank Kwabi

De Montfort University

Agyenim Boateng

Glasgow Caledonian University

Emmanuel Adegbite

University of Nottingham

Date Written: 2018

Abstract

This paper examines the effects of interaction between stringent insider trading laws, institutional quality and equity portfolio allocation on the cost of capital. Using a dataset drawn from 44 countries over the period from 2001-2015, we find that stringent insider trading laws interact with institutional quality and foreign equity portfolio allocation to reduce the country-level cost of capital. Further analysis from a quasi-natural experiment based on the 2008-2009 global financial crisis suggests that the findings are robust to endogeneity. Our results imply that the enactment of stringent insider trading laws and their interplay with the quality of institutions are not only important to portfolio investment allocation decisions but reduce the country-level cost of capital.

Keywords: Insider trading laws, Cost of capital, Foreign equity allocation, Institutional quality

JEL Classification: G11, G14, F3

Suggested Citation

Kwabi, Frank and Boateng, Agyenim and Adegbite, Emmanuel, The Impact of Stringent Insider Trading Laws and Institutional Quality on the Cost of Capital (2018). International Review of Financial Analysis, Vol. 60, pp. 127-137, 2018. Available at SSRN: https://ssrn.com/abstract=3512763 or http://dx.doi.org/10.2139/ssrn.3512763

Frank Kwabi

De Montfort University ( email )

The Gateway
Leicester, LE1 9BH
United Kingdom

Agyenim Boateng

Glasgow Caledonian University ( email )

Scotland
United Kingdom

Emmanuel Adegbite (Contact Author)

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

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