Does Insider Trading Regulation Deter Private Information Trading? International Evidence

37 Pages Posted: 15 Jan 2007

See all articles by Art Durnev

Art Durnev

University of Iowa - Henry B. Tippie College of Business

Amrita Nain

University of Iowa - Henry B. Tippie College of Business

Multiple version iconThere are 2 versions of this paper

Date Written: January 1, 2007

Abstract

Using a sample of 2,189 firms from 21 countries we find that, on average, stricter insider trading regulations reduce private information trading. However, for firms with high agency costs, insider trading restrictions are less effective in deterring private information trading. We suggest that controlling shareholders who are banned from trading may resort to covert expropriation of firm resources thereby reducing transparency and increasing the returns to private information trading. Consistent with this, we find that firms with higher agency costs located in countries with stricter insider trading laws have more opaque earnings and are valued lower.

Keywords: Insider trading regulation, ownership wedge, private information trading, earnings opacity

JEL Classification: G15, G14, G38

Suggested Citation

Durnev, Artyom and Nain, Amrita, Does Insider Trading Regulation Deter Private Information Trading? International Evidence (January 1, 2007). Available at SSRN: https://ssrn.com/abstract=950105 or http://dx.doi.org/10.2139/ssrn.950105

Artyom Durnev (Contact Author)

University of Iowa - Henry B. Tippie College of Business ( email )

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Amrita Nain

University of Iowa - Henry B. Tippie College of Business ( email )

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Iowa City, IA 52242-1000
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