This paper examines the effect of insider trading restrictions on corporate risk-taking. Using a cross-country sample of 38 countries over the 1990 to 2003 period, we find that corporate risk-taking is positively related to insider trading restrictions. This finding is robust to alternative regression specifications and sample periods, to the use of alternative measures of insider trading restrictions and risk-taking incentives, and to controls for possible endogeneity. Further investigation suggests that the relation between insider trading restrictions and corporate risk-taking is influenced by cross-sectional differences in stock market development and legal origin, and that the increase in risk-taking is beneficial to firms. In conclusion, this paper highlights the role of insider trading restrictions as an important determinant of corporate risk-taking.
Insider trading restrictions, Risk-taking incentives, Cross-country study
Corporate Governance, Auditing and Risk Management
Pacific-Basin Finance Journal
Insider Trading Restrictions and Corporate Risk-Taking. (2015). Pacific-Basin Finance Journal. 35, (A), 125-142. Research Collection School Of Accountancy.
Available at: http://ink.library.smu.edu.sg/soa_research/1376
Creative Commons License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.