Corporate governance and the profitability of insider trading

This paper examines the influence of corporate governance systems on insiders' ability to profit from their information advantage and the ways through which corporate governance systems influence such ability. We find that corporate governance significantly reduces the profitability of insider sales but not that of insider purchases. Given that sales involve greater legal risk than purchases, the results suggest that well-governed firms restrict informed insider trading mainly to reduce legal risk. We also find that better-governed firms reduce the profitability of insider sales by increasing the likelihood of adopting ex-ante preventive measures (e.g., voluntary insider trading restriction policies), implementing such measures more effectively, and taking ex post disciplinary actions more actively. These results highlight how better-governed firms are able to restrict insiders from exploiting private information. (C) 2016 Elsevier B.V. All rights reserved
Publisher
ELSEVIER SCIENCE BV
Issue Date
2016-10
Language
ENG
Keywords

EXECUTIVE-COMPENSATION; CEO TURNOVER; INFORMATION ASYMMETRY; EARNINGS MANAGEMENT; FIRM PERFORMANCE; DIRECTORS; TRADES; LITIGATION; EQUITY; IMPACT

Citation

JOURNAL OF CORPORATE FINANCE, v.40, pp.235 - 253

ISSN
0929-1199
DOI
10.1016/j.jcorpfin.2016.08.002
URI
http://hdl.handle.net/10203/214107
Appears in Collection
MT-Journal Papers(저널논문)
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