A Comparative Empirical Investigation of Agency and Market Theories of Insider Trading

Laura Nyantung Beny

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Corporate Finance and Governance Financial Markets and Investment Strategies Securities Regulation and Market Practices

Abstract

The paper summarizes various agency cost and market theories of insider trading propounded over the course of the perennial law and economics debate over insider trading. The paper then suggests three testable hypotheses regarding the relationship between insider trading laws and several measures of financial performance. Using international data and alternative regression specifications, the paper finds that more stringent insider trading laws and enforcement are generally associated with greater ownership dispersion, greater stock price accuracy and greater stock market liquidity. This set of findings provides empirical support to theoretical arguments in favor of more stringent insider trading legislation and enforcement.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1970The Market for "Lemons": Quality Uncertainty and the Market Mechanism 1997A Survey of Corporate Governance 1962Economic Welfare and the Allocation of Resources for Invention 1986Large Shareholders and Corporate Control 1986Asset pricing and the bid-ask spread 2000The information content of stock markets: why do emerging markets have synchronous stock price movements?2000Financial markets and the allocation of capital

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2010Idiosyncratic Risk in Emerging Markets 2008Inside Agency: The Rise and Fall of Nortel 2015Corporate governance and transparency: evidence from stock return synchronicity 2001Global Differences in Corporate Governance Systems - Theory and Implications for Reforms 2003A Survey of Securities Laws and Enforcement 2014Insider trading restrictions and corporate risk-taking

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