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Article
Publication date: 3 January 2017

Anil Kumar Manchikatla and Rajesh H. Acharya

The purpose of this paper is to study the effectiveness of insider trading enforcement actions in India and international dimensions.

Abstract

Purpose

The purpose of this paper is to study the effectiveness of insider trading enforcement actions in India and international dimensions.

Design/methodology/approach

The research is based on the insider trading regulations and amendments made during the period 1992-2015.

Findings

The notable observation of the study is the dearth of insider trading conviction and the paucity of prosecution for insider trading offences in India. It is difficult to resist the conclusion that surveillance and enforcement matter more than the drafting of the relevant statutes and regulations in emerging markets. Whereas, developed countries have a better record of prosecution than emerging markets.

Research limitations/implications

Future research may explore the factors that hinder effective regulation and recommend new methods to increase the impact of Securities and Exchange Board of India insider trading regulation.

Originality/value

The current paper presents guidance for the foreign institutional investors, regulators and market participants on insider trading regulation and prosecution in India.

Details

Journal of Financial Crime, vol. 24 no. 1
Type: Research Article
ISSN: 1359-0790

Keywords

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Article
Publication date: 19 July 2011

Thomas H. McInish, Alex Frino and Frank Sensenbrenner

Using data for actual insider trading cases prosecuted by the Securities and Exchange Commission, the paper aims to investigate whether insiders trade strategically to…

Abstract

Purpose

Using data for actual insider trading cases prosecuted by the Securities and Exchange Commission, the paper aims to investigate whether insiders trade strategically to avoid detection.

Design/methodology/approach

The paper analyzes actual insider trades prior to price sensitive announcements.

Findings

It is found that insiders are more likely to trade on high volume days, which indicates an effort to hide their trades. Further, insider trading raises the number of days with abnormally high trading volume only slightly, again indicating that insiders are avoiding attracting attention. No evidence is found that insider trading intensity increases on the insider trading day closest to the announcement day. The hypothesis that index returns for insider trading days and non‐trading days are the same cannot be rejected, which is consistent with insiders avoiding detection. For stocks sold by insiders, returns are higher for insider trading days than for non‐insider trading days. Hence, insiders are selling on days when the market is up, which tends to hide their trading. But for stocks bought by insiders, returns are significantly higher on insider trading days than on non‐insidertrading days, indicating that in this case insiders may attract unwanted attention.

Originality/value

The research may be useful to those attempting to detect insider trades.

Details

Journal of Financial Crime, vol. 18 no. 3
Type: Research Article
ISSN: 1359-0790

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Article
Publication date: 24 June 2020

Jin-Ying Wang

This study explores whether institutional investors can distinguish an undervalued share repurchase from a falsely signaled share repurchase. This study also aims to…

Abstract

Purpose

This study explores whether institutional investors can distinguish an undervalued share repurchase from a falsely signaled share repurchase. This study also aims to determine what information institutions use when investing in repurchase stocks.

Design/methodology/approach

This study uses unique Taiwanese data and concentrates on foreign institutions because they are the most sophisticated investors in Taiwan.

Findings

The results show that foreign institutional trading in open market repurchase (OMR) stocks will earn both positive concurrent and post-OMR excess returns. In addition, there is a significant positive relationship between pre-OMR insider trading and foreign institutional trading during the OMR period; that is, foreign institutions follow insiders to trade their OMR stocks.

Practical implications

This study finds that foreign institutions use publicly available data on insider trading to choose OMR stocks and create excess returns. This encourages individual investors without private information, who can also earn a positive return if they diligently study available public information.

Originality/value

This study contributes to the international investment literature by determining the price impacts associated with foreigner trading in the firm-level returns of the host country. In addition, this study finds that foreign institutions choose OMRs based on insider trading information, which fills the gap in existing studies on share repurchasing. Moreover, this study enriches the insider literature by showing how foreign institutions can benefit by using insider trading information.

Details

Managerial Finance, vol. 46 no. 10
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 1 April 2019

Aneta Spaic, Claire Angelique Nolasco, Lily Chi-Fang Tsai and Michael S. Vaughn

This paper analyzes trading and tipping activities in insider trading litigation decided by federal courts from January 1, 2012 to December 31, 2014.

Abstract

Purpose

This paper analyzes trading and tipping activities in insider trading litigation decided by federal courts from January 1, 2012 to December 31, 2014.

Design/methodology/approach

Legal documents from the US Securities and Exchange Commission, LexisNexis and Westlaw databases were coded to determine profile, patterns of trading and settlement outcomes.

Findings

Results of statistical analysis indicate that a defendant in both civil and criminal cases is more likely to trade on the information when he/she receives a direct, financial benefit from breaching his/her duty of confidentiality. The defendant tipper is also more likely to pass on the information to a close personal friend, business associate or family member. The average amount of profit of defendants in both civil and criminal proceedings substantially exceeds the average amount of their settlements.

Originality/value

This paper offers support for the rational choice model – insider trading is often based on rational calculations of benefits not only to the defendant but also to his/her family and associates. Although the threat of civil enforcement and criminal proceedings may possibly deter him/her from committing the crime, results indicate that the amounts of settlement in both proceedings are considerably lower than the amount of profits obtained from the offense.

Details

Journal of Financial Crime, vol. 26 no. 2
Type: Research Article
ISSN: 1359-0790

Keywords

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Article
Publication date: 31 May 2018

Tania Morris and Hamadou Boubacar

This study aims to examine whether insider purchases made within 30 days prior to the publication of various kinds of press releases earn higher abnormal returns (AR) than…

Abstract

Purpose

This study aims to examine whether insider purchases made within 30 days prior to the publication of various kinds of press releases earn higher abnormal returns (AR) than those in the absence of such announcements. It also attempts to identify the factors that explain ARs.

Design/methodology/approach

This study considers data for Canadian insider purchases made on the Toronto Stock Exchange 60 Index. An event study methodology is used to calculate AR, and a mixed regression model is used to evaluate the effect of corporate news on AR.

Findings

The empirical results indicate that insiders achieve greater ARs when they purchase stock prior to press releases; findings also show that these returns are specifically related to purchases made before the announcements of mergers and acquisitions, ongoing projects, financial structure, financial results and asset disposals. This is because of the firm effect.

Practical implications

These findings have important implications for Canadian market regulatory authorities, especially the Ontario Securities Commission and other market participants who are interested in corporate governance, such as boards of directors and shareholders.

Originality/value

The present findings show that regulatory bodies must work with companies to raise awareness of improper insider trading.

Details

Management Research Review, vol. 41 no. 10
Type: Research Article
ISSN: 2040-8269

Keywords

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Article
Publication date: 1 December 2001

Phillip Anthony O’Hara

Scrutinises legal, ethical and efficiency standards for and against insider trading. The main arguments supporting insider trading are that it promotes economic efficiency…

Abstract

Scrutinises legal, ethical and efficiency standards for and against insider trading. The main arguments supporting insider trading are that it promotes economic efficiency and enterprise. The primary argument against insider trading is that it can be a breach of fiduciary duty; the other arguments of asymmetrical information, in‐principle unequal access to information, and misappropriation seem relatively difficult to accept. On balance, it seems that insider trading may possibly be organised in firms so long as policies are transparent, shareholders accept the practice and certain measures are taken to reduce the incidence of free riders. However, the current state of knowledge on the subject makes it very difficult to come to unequivocal conclusions about whether aspects of it should be illegal or not. Much more theoretical and empirical work is needed on the ethical and social foundations of capitalism, insider trading in general, potential conflict of interest between innovators and shareholders, free riders, possible lack of confidence in the market, and in what ways illegality changes the behaviour of agents.

Details

International Journal of Social Economics, vol. 28 no. 10/11/12
Type: Research Article
ISSN: 0306-8293

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Article
Publication date: 1 February 1998

Philip Summe and Kimberly A. McCoy

Throughout the history of commerce, individuals have searched for informational advantages that will lead to their enrichment. In a time of global capital markets, 24…

Abstract

Throughout the history of commerce, individuals have searched for informational advantages that will lead to their enrichment. In a time of global capital markets, 24 hours a day trading opportunities, and a professional services corps of market experts, informational advantages are pursued by virtually every market participant. This paper examines one of the most vilified informational advantages in modern capital markets: insider trading. In the USA during the 1980s, insider trading scandals occupied the front pages of not only the trade papers, but also quotidian tabloids. Assailed for its unfairness and characterised by some as thievery, insider trading incidents increased calls for stricter regulation of the marketplace and its participants. In the aftermath of the spectacular insider trading litigation in the USA in the late 1980s, many foreign states began to re‐evaluate the effectiveness of their own regulatory structures. In large part, this reassessment was not the produce of domestic demand, but constituted a response to American agitation for increased regulation of insider trading.

Details

Journal of Financial Crime, vol. 5 no. 4
Type: Research Article
ISSN: 1359-0790

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Article
Publication date: 8 July 2014

Pawan Jain and Mark A. Sunderman

The purpose of this paper is to examine the stock price movements for existence of informed trading prior to a merger announcement for the companies listed on the emerging…

Abstract

Purpose

The purpose of this paper is to examine the stock price movements for existence of informed trading prior to a merger announcement for the companies listed on the emerging markets of India for the period from 1996 to 2010.

Design/methodology/approach

This study applies several event study methodologies and regression analyses to analyze the stock price movement surrounding a merger announcement. The paper divides mergers in two different types: industry merger cases and non-industry merger cases and in two different time periods: recession and boom.

Findings

The results show that the information held only by insiders’ works its way into prices. The paper finds strong evidence of insider trading in the case of industry mergers and mergers during recessions.

Practical implications

The results from this study have immediate policy implications for India and other developing markets as the paper provides the type of mergers and time periods when merger announcements are more susceptible to insider trading.

Originality/value

The paper extends the literature on mergers and insider trading by analyzing firms trading on a developing capital market, which, unlike the developed markets, is characterized by inadequate disclosure and a weaker enforcement of securities regulations. The results support this notion and recommend Indian securities market regulators to tighten the lax regulations. In addition, the author document the divergence in price reaction to the merger announcements for different types of mergers: industry mergers and non-industry mergers, as well as for mergers during different market conditions: recession vs booming capital markets.

Details

Managerial Finance, vol. 40 no. 8
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 5 September 2018

Han Ching Huang and Pei-Shan Tung

The purpose of this paper is to examine whether the underlying option impacts an insider’s propensity to purchase and sell before corporate announcements, the proportion…

Abstract

Purpose

The purpose of this paper is to examine whether the underlying option impacts an insider’s propensity to purchase and sell before corporate announcements, the proportion of insiderstrading after announcements relative to before announcements, and the insider’s profitability around corporate announcements.

Design/methodology/approach

The authors test whether the timing information and option have impacted on the tendency of insider trade, the percentage of all shares traded by insiders in the post-announcement to pre-announcement periods and the average cumulative abnormal stock returns during the pre-announcement period.

Findings

Insiders’ propensity to trade before announcements is higher for stocks without options listed than for stocks with traded options. This result is stronger for unscheduled announcements than for scheduled ones. The proportion of insiderstrade volume after announcements relative to before announcements in stocks that have not options listed is higher than those in stocks with traded options. The positive relationship between the insiders’ signed volume and the informational content of corporate announcements is stronger in stocks without traded options than in stocks with options listed. Insider trades prior to unscheduled announcement are more profitable than those before scheduled ones.

Research limitations/implications

The paper examines whether there is a difference between the effects of optioned stock and non-optioned stock. Roll et al. (2010) use the relative trading volume of options to stock ratio (O/S) to proxy for informed options trading activity. Future research could explore the impact of O/S. Moreover, the authors examine how insiders with private information use such information to trade in their own firms. Mehta et al. (2017) argue that insiders also use private information to facilitate trading (shadow trading) in linked firms, such as supply chain partners or competitors. Therefore, future research could consider the impact of shadow trading.

Social implications

Since the insider’s propensity to buy before announcements in stocks without options listed is larger than in stocks with traded options and the relationship is stronger for unscheduled announcements than for scheduled ones, the efforts of regulators should focus on monitoring insider trading in stocks without options listed prior to unscheduled announcements.

Originality/value

First, Lei and Wang (2014) find that the increasing pattern of insider’s propensity to trade before unscheduled announcements is larger than that before scheduled announcements. The authors document the underlying option has impacted the insider’s propensity to purchase and sell, and the relationship is stronger for unscheduled announcements than for scheduled ones. Second, related studies show insider’s trading activity has shifted from periods before corporate announcements to periods after corporate announcements to decrease litigation risk. This paper find the underlying option has influenced the proportion of insiderstrading after announcements relative to before announcements when the illegal insider trade-related penalties increase.

Details

Managerial Finance, vol. 44 no. 10
Type: Research Article
ISSN: 0307-4358

Keywords

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Article
Publication date: 2 September 2014

Aydin Ozkan and Agnieszka Trzeciakiewicz

The purpose of this paper is to investigate the impact of insider trading on subsequent stock returns in the UK, with a specific focus on the impact of the global…

Abstract

Purpose

The purpose of this paper is to investigate the impact of insider trading on subsequent stock returns in the UK, with a specific focus on the impact of the global financial crisis of 2007-2008 on the relation between CEO and CFO stock purchases and returns.

Design/methodology/approach

The empirical analysis uses 10,230 purchases executed in 679 UK firms by 1,477 directors during the period from 2000 to 2010. Subsequent market-adjusted stock returns are regressed on a set of firm-specific accounting, market and corporate governance variables as well as the characteristics of CEOs and CFOs. Additionally, the analysis distinguishes between the opportunistic and routine trades.

Findings

The findings reveal that the position of the trading director and the nature of their trades are important in determining the impact on returns of insider trades. In particular, CEO purchases are on the whole more informative than CFO purchases and opportunistic purchases. The trades in the post-crisis period have a greater impact on subsequent stock returns.

Research limitations/implications

The empirical analysis is limited to the trades made by two executives. Future research should consider inside trades by all directors and distinguish between executive and non-executive directors. Also, a behavioral measure should be developed to test if the financial crisis affected the trading behavior of directors and whether directors use insider trading strategically to signal information to the market.

Practical implications

The impact of directors’ dealings on stock returns is not homogeneous. Financial analysts and investors should pay more attention to different types of trades and the identity of trading director.

Originality/value

This paper, to the authors’ knowledge, provides the first attempt that combines in the same framework the identity and personal attributes of trading executive directors, firm-level corporate governance features, the nature of purchase transactions and the trading period characteristics. Furthermore the empirical analysis is carried out during a period that also covers the recent global financial crisis period and its immediate aftermath.

Details

Review of Behavioral Finance, vol. 6 no. 1
Type: Research Article
ISSN: 1940-5979

Keywords

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