Publication Type

Working Paper

Publication Date



Restricting insider trading enhances price informativeness by encouraging investors to acquire and trade on private information. Therefore, corporate investment should be more sensitive to stock prices and more efficient as stock prices provide more precise information to guide the investment decisions. Consistent with this hypothesis, we find that the investment-to-price sensitivity increases significantly after a country’s initial enforcement of insider trading laws. The increase is positively associated with the enhancement of price informativeness around the enforcement. Finally, accounting performance is improved after the enforcement and the improvement is in general positively associated with the increase in the investment-to-price sensitivity.


Enforcement, Insider trading laws, Investment, Managerial learning, Market frictions, Real effect


Accounting | Portfolio and Security Analysis

Research Areas

Corporate Governance, Auditing and Risk Management