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
Citation
HONG, Claire Yurong; LI, Frank Weikai; and ZHU, Qifei.
Monitoring from afar: Do foreign institutional investors deter insider trading?. (2018). 1-62.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/5938
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.