Insider Trading and Corporate Governance Structure: Evidence from Southeast Asia

32 Pages Posted: 26 Mar 2003

See all articles by Mingyi Hung

Mingyi Hung

Hong Kong University of Science & Technology (HKUST)

Robert Trezevant

University of Southern California - Leventhal School of Accounting

Date Written: January 2003

Abstract

By examining the flow of the value-relevant information in annual earnings into stock price, we provide evidence that is consistent with the proposition that insiders of Southeast Asian companies controlled by the richest families are particularly aggressive in trading on their proprietary knowledge concerning this information. We find further support for this insider trading proposition based on tests that assume the presence of a strong incentive for insider trading (i) when there is a large change in earnings and (ii) before the first legal case in a country is brought against insider trading. We do not find similar evidence in the relatively well regulated market of Hong Kong or for family-controlled companies overall. Our test results are robust to controls for company-specific size, growth, and risk, as well as to alternative measures of the flow of information into stock price. These findings expand our understanding of how corporate governance structure affects the flow of information into stock price. In addition, these findings are consistent with the notion that insider trading leads to the incorporation of private information into stock price and improves the accuracy of stock price, which suggests that a company's stock price is more informative for companies in which insiders have relatively more opportunities and incentives to trade on their private information.

Keywords: Accounting Earnings, Corporate governance structure, Insider trading, Southeast Asian corporations, Stock price formation

JEL Classification: G15, G32

Suggested Citation

Hung, Mingyi and Trezevant, Robert, Insider Trading and Corporate Governance Structure: Evidence from Southeast Asia (January 2003). Available at SSRN: https://ssrn.com/abstract=374422 or http://dx.doi.org/10.2139/ssrn.374422

Mingyi Hung

Hong Kong University of Science & Technology (HKUST) ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

Robert Trezevant (Contact Author)

University of Southern California - Leventhal School of Accounting ( email )

Los Angeles, CA 90089-0441
United States
213-740-5013 (Phone)
213-747-2815 (Fax)

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