The Deterrent Effect of Whistleblowing on Insider Trading

Journal of Financial and Quantitative Analysis

Posted: 28 Sep 2020 Last revised: 20 Sep 2023

See all articles by Jacob Raleigh

Jacob Raleigh

Monash University - Department of Accounting

Date Written: May 20, 2020

Abstract

I study whether the Dodd-Frank whistleblower program reduced informed trading by corporate insiders. To identify the effect, I partition firms based on the extent to which this program affected the likelihood of whistleblowing at each firm. I find a relative reduction in trading profits on purchases made by insiders at more affected firms after the program was initiated. I analyze insider sales in settings where they are more likely to be informed and find a reduction in the number of sales before negatively perceived events. The results suggest that whistleblower protections and rewards can effectively deter insider trading.

Keywords: Whistle-blowing, Insider Trading, Dodd-Frank

JEL Classification: K22, K42, M48

Suggested Citation

Raleigh, Jacob, The Deterrent Effect of Whistleblowing on Insider Trading (May 20, 2020). Journal of Financial and Quantitative Analysis, Available at SSRN: https://ssrn.com/abstract=3672026 or http://dx.doi.org/10.2139/ssrn.3672026

Jacob Raleigh (Contact Author)

Monash University - Department of Accounting ( email )

H3.43, Building H, Level 3
Monash University Caulfiled
Melbourne, VIC 3145
Australia

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