Political Network and Muted Insider Trading

83 Pages Posted: 30 Sep 2022 Last revised: 6 Feb 2024

See all articles by Wei Chen

Wei Chen

Citigroup, Inc.

Xian Gu

Durham University Business School

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Hao Zhao

Durham University

Yun Zhu

St. John's University - Department of Economics and Finance

Date Written: September 27, 2022

Abstract

This paper explores the impact of political network on insider trading activities in China. With a comprehensive network mapping links between politicians and firm chairmen, we find that stronger political network discourages insider trading. Such effect is more pronounced among long-standing and high-level connections, and persists in the events of M&A and public policy announcement when insiders may make profitable informed trading. This suggests that managers with powerful political network choose to keep a low profile in insider trading. In exploring the underlying mechanisms, we confirm that the muted insider trading is related to preferable financial and policy support, and are more pronounced for SOEs in provinces with stronger market force and legal enforcement.

Keywords: Political Network, Insider Trading, State Ownership, Enforcement

JEL Classification: G14, G38, D72, L14

Suggested Citation

Chen, Wei and Gu, Xian and Hasan, Iftekhar and Zhao, Hao and Zhu, Yun, Political Network and Muted Insider Trading (September 27, 2022). Available at SSRN: https://ssrn.com/abstract=4230854 or http://dx.doi.org/10.2139/ssrn.4230854

Wei Chen

Citigroup, Inc.

Xian Gu (Contact Author)

Durham University Business School ( email )

Mill Hill Lane
Durham, DH1 3LB
United Kingdom

Iftekhar Hasan

Fordham University ( email )

45 COLUMBUS AVENUE
GBA-5TH FLOOR
NEW YORK, NY 10023
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

Hao Zhao

Durham University ( email )

Durham
United Kingdom

Yun Zhu

St. John's University - Department of Economics and Finance ( email )

Jamaica, NY 11439
United States

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