Publication Type

Working Paper

Version

publishedVersion

Publication Date

9-2018

Abstract

This paper examines the disciplinary effect of foreign institutional investors on opportunistic insider trading. Using a novel global insider trading data set containing 35,557 firms from 26 countries over the period 2000-2015, we find that greater foreign institutional ownership significantly reduces the profitability of insider trading, above and beyond the effect of domestic institutional ownership. Using the exogenous variation in foreign institutional ownership induced by MSCI index inclusion, we show that the effect is causal. The impact of foreign investors is stronger in countries with weak insider trading regulations and poor institutional environments, and operates mainly through the monitoring channel, rather than the channel of improved information environments.

Keywords

Foreign Institutional Ownership, Insider Trading, Monitoring

Discipline

Finance and Financial Management | Portfolio and Security Analysis

Research Areas

Finance

First Page

1

Last Page

62

City or Country

Working Paper

External URL

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3239075

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