Judge Ideology and Opportunistic Insider Trading

Journal of Financial and Quantitative Analysis, accepted

HKUST Business School Research Paper No. 2024-141

66 Pages Posted: 26 Oct 2021 Last revised: 21 Feb 2024

See all articles by Allen H. Huang

Allen H. Huang

Hong Kong University of Science and Technology - Department of Accounting

Kai Wai Hui

University of Hong Kong

Yue Zheng

Hong Kong University of Science & Technology (HKUST)

Date Written: February 12, 2024

Abstract

Although federal judges are the ultimate arbiters of insider trading enforcement, the role of their political ideology in insider trading is unclear. Using the partisanship of judges’ nominating presidents to measure judge ideology, we first document that liberal judges are associated with heavier penalties in insider trading lawsuits than conservative judges. Next, we find that firms located in circuits with more liberal judges have fewer opportunistic insider sales. Cross-sectional analyses show that this deterrent effect is stronger when managers face a higher risk of insider trading lawsuits. Finally, we find that the SEC considers judges’ ideology when selecting litigation forums.

Keywords: Insider trading enforcements; judge ideology; opportunistic insider trading; federal judiciary; Securities and Exchange Commission; forum shopping

JEL Classification: G14, K22, K41, K42

Suggested Citation

Huang, Allen H. and Hui, Kai Wai and Zheng, Yue, Judge Ideology and Opportunistic Insider Trading (February 12, 2024). Journal of Financial and Quantitative Analysis, accepted, HKUST Business School Research Paper No. 2024-141, Available at SSRN: https://ssrn.com/abstract=3947898 or http://dx.doi.org/10.2139/ssrn.3947898

Allen H. Huang

Hong Kong University of Science and Technology - Department of Accounting ( email )

LSK Business School Building
HKUST
Clear Water Bay, Kowloon
Hong Kong

HOME PAGE: http://www.AllenHuang.org

Kai Wai Hui (Contact Author)

University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam
Hong Kong

Yue Zheng

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

Clearwater Bay
Kowloon, 999999
Hong Kong

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