Does Insider Trading Regulation Deter Private Information Trading? International Evidence

37 Pages Posted: 23 Dec 2006

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

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Abstract

Using a sample of 2189 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. Pacific-Basin Finance Journal, Forthcoming. Available at SSRN: https://ssrn.com/abstract=953387

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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5020 Main Library
Iowa City, IA 52242-1000
United States

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