Publication Type

Journal Article

Version

publishedVersion

Publication Date

2-2024

Abstract

Do illegal insiders internalize legal risk? We address this question with hand-collected data from 530 SEC (the U.S. Securities and Exchange Commission) investigations. Using two plausibly exogenous shocks to expected penalties, we show that insiders trade less aggressively and earlier and concentrate on tips of greater value when facing a higher risk. The results match the predictions of a model where an insider internalizes the impact of trades on prices and the likelihood of prosecution and anticipates penalties in proportion to trade profits. Our findings lend support to the effectiveness of U.S. regulations' deterrence and the long-standing hypothesis that insider trading enforcement can hamper price informativeness.

Keywords

Enforcement, information, securities, market, prices

Discipline

Finance | Finance and Financial Management

Research Areas

Finance

Publication

Journal of Finance

Volume

79

Issue

1

First Page

305

Last Page

355

ISSN

0022-1082

Identifier

10.1111/jofi.13299

Publisher

Wiley

Copyright Owner and License

Authors-CC-BY

Creative Commons License

Creative Commons Attribution 4.0 International License
This work is licensed under a Creative Commons Attribution 4.0 International License.

Additional URL

https://doi.org/10.1111/jofi.13299

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