Delinquent Insider Trade Reporting and Corporate Misconduct

Abstract

Delinquent insider trade reporting is a violation of securities law. Although these violations may seem minor, they indicate a broader culture of firm noncompliance, which can lead to other forms of misconduct. Using a panel dataset of 18,567 firm-year observations, we find a significant positive relation association between insider filing violations and future corporate misconduct. This effect is strongest for firms with a weak internal oversight system, proxied by firms that do not have a Chief Compliance Officer (CCO) or a voluntary restriction on blackout trading. These findings suggest that implementing a strong internal regulatory system fosters a culture of compliance and establishes checks and balances within the firm.

Keywords: Insider Trading Filing Violations, Corporate Misconduct, Corporate Culture, Governance