Social Capital and Insider Trading

56 Pages Posted: 30 Jul 2021

See all articles by Xuan Mi

Xuan Mi

University of Queensland, Business School, Students

Ronghong Huang

University of Queensland - Business School

Kelvin Jui Keng Tan

University of Queensland - Business School; Financial Research Network (FIRN)

Date Written: July 7, 2021

Abstract

Using a large U.S. dataset on insider purchases and variations in the social capital of U.S. counties, we find that the intensity (profitability) of insider trading is positively (negatively) associated with social capital. These results are more pronounced when we restrict our sample to include only opportunistic (rather than routine) insider purchases. Our results indicate that insiders affiliated with firms headquartered in counties with high levels of social capital are relatively more likely to foster market information efficiency by making additional insider purchases. However, they are less likely than those affiliated with firms outside such counties to time the market to increase the profitability of their insider purchases. Furthermore, we address endogeneity issues and establish that these relationships are causal by applying an instrumental variable approach. Finally, we show that the main driver of the positive (negative) relationship between the intensity (profitability) of insider purchases and social capital is the density of social networks (the strength of civic norms).

Keywords: Social capital, Insider trading, Insider trading profitability, Information asymmetry

JEL Classification: G14

Suggested Citation

Mi, Xuan and Huang, Ronghong and Tan, Kelvin Jui Keng, Social Capital and Insider Trading (July 7, 2021). Available at SSRN: https://ssrn.com/abstract=3881867 or http://dx.doi.org/10.2139/ssrn.3881867

Xuan Mi

University of Queensland, Business School, Students ( email )

St Lucia
Australia

Ronghong Huang (Contact Author)

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Kelvin Jui Keng Tan

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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