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Article
Publication date: 3 July 2023

Howard Chitimira

It is important to note that insider trading is currently outlawed under the Securities Act 17 of 2004 (Chapter 24: 25) as amended (Securities Act) in Zimbabwe. This Act…

Abstract

Purpose

It is important to note that insider trading is currently outlawed under the Securities Act 17 of 2004 (Chapter 24: 25) as amended (Securities Act) in Zimbabwe. This Act enumerates some practices that may give rise to insider trading liability in the Zimbabwean financial markets. Nonetheless, numerous challenges, such as the lack of adequate financial resources, the lack of sufficient persons with the relevant skills and expertise on the part of the enforcement authorities, lack of political will, inadequacy of insider trading provisions, poor cooperation and collaboration between the relevant authorities and the ongoing coronavirus (Covid-19) pandemic have negatively impeded the effective regulation and combating of insider trading in Zimbabwe. To this end, the author explores the stated challenges and recommend measures that could be used by regulatory bodies and other relevant enforcement authorities to enhance the regulation and combating of insider trading in the Zimbabwean financial markets. This study aims to enhance the detection and combating of insider trading in Zimbabwe.

Design/methodology/approach

A qualitative research methodology is used through the analysis of relevant legislation and case law.

Findings

It is hoped that the findings and recommendations made in this study will be considered by the Zimbabwean policymakers.

Research limitations/implications

The study does not use empirical research methodology.

Practical implications

The findings and recommendations made in this study could enhance the combating of insider trading activities in Zimbabwe.

Social implications

The study seeks to curb insider trading in the Zimbabwean financial markets and financial institutions in the wake of the covid-19 pandemic-related regulatory and enforcement challenges.

Originality/value

The study provides original research on the regulation and combating of insider trading activities in Zimbabwe.

Details

Journal of Financial Crime, vol. 30 no. 6
Type: Research Article
ISSN: 1359-0790

Keywords

Article
Publication date: 29 June 2021

Omar Esqueda, Thanh Ngo and Daphne Wang

This paper examines the effect of managerial insider trading on analyst forecast accuracy, dispersion and bias. Specifically, the authors test whether insider-trading information…

Abstract

Purpose

This paper examines the effect of managerial insider trading on analyst forecast accuracy, dispersion and bias. Specifically, the authors test whether insider-trading information is positively associated with the precision of earnings forecasts. In addition, this relationship between Regulation Fair Disclosure (FD) and the Galleon insider trading case is examined.

Design/methodology/approach

Pooled ordinary least squares (Pooled OLS) rregressions with year-fixed effects, firm-fixed effects, and firm-level clustered standard errors are used. Our proxies for forecast precision are regressed on alternative measures of insider trading activities and a vector of control variables.

Findings

Insider-trading information is positively associated with the precision of earnings forecasts. Analysts provide better forecast accuracy, less forecast dispersion and lower forecast bias among firms with insider trading in the six months leading to the forecast issues. In addition, bullish (bearish) insider trades are associated with increased (decreased) forecast bias. Insider trading information complements analysts' independent opinion and increases the precision of their forecast.

Practical implications

Regulators may pursue rules that promote the rapid disclosure of managerial insider trades, particularly given the increasing availability of Internet tools. Securities regulators may attempt to increase transparency and enhance the reporting procedures of corporate insiders, for example, using Internet sources with direct release to the public to ensure more timely information dissemination.

Originality/value

The authors document a positive association between earnings forecast precision and managerial insider trading up to six months prior to the forecast issue. This relationship is stronger after the Securities and Exchange Commission (SEC) prohibited the selective disclosure of material nonpublic information through Regulation FD. In addition, the association between insider trading and forecast accuracy has weakened after the Galleon insider trading case.

Details

Asian Review of Accounting, vol. 29 no. 3
Type: Research Article
ISSN: 1321-7348

Keywords

Article
Publication date: 9 January 2017

Frederick Davis, Behzad Taghipour and Thomas J. Walker

The purpose of this paper is to investigate the trading patterns of corporate insiders, both managing and non-managing, around the announcement dates of securities class action…

Abstract

Purpose

The purpose of this paper is to investigate the trading patterns of corporate insiders, both managing and non-managing, around the announcement dates of securities class action lawsuits and related legal settlements.

Design/methodology/approach

The authors use market model event study methodology to examine the impact of class action litigation and settlement announcements on the stock prices of sued firms. The authors then determine the extent of abnormal insider trading surrounding such announcements by comparing insider trading activity (volume and transaction counts) to prior insider trading in the same firm, and to a matched sample of firms not experiencing such litigation announcements. A multivariate framework is utilized to provide further insight into the determinants of such abnormal insider trading.

Findings

The authors establish that class action litigation and settlement announcements have a significant impact on the stock prices of sued firms, and that foreknowledge of these events appears to be used by insiders to earn abnormal profits. Moreover, results indicate that managing insiders exhibit higher opportunistic abnormal trading activity than non-managing insiders. Multivariate analysis shows that size, prior firm returns, and the implementation of the Sarbanes-Oxley Act are important determinants of such insider trading.

Originality/value

This appears to be the first paper to analyze insider trading surrounding class action settlement announcements, and raises concerns about the ethical conduct of certain insider groups while highlighting the importance of access to private information, even amongst insiders themselves.

Article
Publication date: 20 March 2009

Jonathan Stanley, F. Todd De Zoort and Gary Taylor

The purpose of this paper is to examine whether insider trading surrounding a first‐time going concern audit opinion is associated with a firm's future bankruptcy status.

2348

Abstract

Purpose

The purpose of this paper is to examine whether insider trading surrounding a first‐time going concern audit opinion is associated with a firm's future bankruptcy status.

Design/methodology/approach

Hypotheses are developed predicting that insiders of firms receiving going concern opinions (GCOs) trade in a manner consistent with private assessments of the firms' bankruptcy risk. Hypothesis testing involves univariate and logistic regression analysis of 363 firms receiving GCOs between 1996 and 2001.

Findings

As predicted, results indicate that changes in top executives' net selling (i.e. sales less purchases) immediately before and after the GCO are positively associated with the likelihood of bankruptcy over the following two years. Supplemental analysis reveals this finding is a function of insiders within the bankrupt sample reporting fewer purchase transactions surrounding the GCO event.

Practical implications

The results of the study have the potential to influence external stakeholders' assessments of GCOs and insider trading disclosures.

Originality/value

This study extends prior research examining the link between GCOs and clients' subsequent bankruptcy status by highlighting the potential for insider trading activity to serve as an, ex ante, identifier of Type I audit reporting errors. This study contributes to the insider trading literature by identifying the GCO as a specific type of price‐relevant information that potentially underlies insider trades. Consideration of the study's findings should include the possibility of model misspecification and measurement error in the variables of interest. Furthermore, the study's inability to isolate the specific factor(s) underlying the documented changes in insider trading is highlighted.

Details

Managerial Auditing Journal, vol. 24 no. 3
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 7 June 2021

Howard Chitimira

Insider trading is treated as a punishable offence in many jurisdictions and countries. In relation to this, various theories were developed to justify and enhance the regulation…

Abstract

Purpose

Insider trading is treated as a punishable offence in many jurisdictions and countries. In relation to this, various theories were developed to justify and enhance the regulation of insider trading in such jurisdictions and countries. For instance, regulatory bodies and the relevant courts in jurisdictions such as the Commonwealth and the European Union as well as in countries such as the USA and the UK have to date developed and consistently applied theories such as the classical theory, misappropriation theory, fiduciary theory, unified theory and equal access theory in their quest to detect, prevent and combat insider trading activities. For the purposes of this article, the aforesaid theories are discussed so as to recommend possible measures that could be adopted by the policy makers to effectively curb insider trading activities in the Zimbabwean financial markets. It is against this background that some theoretical aspects of the insider trading regulation as adopted by the Zimbabwean policymakers, regulatory bodies and the relevant courts are scrutinised in this paper. This is done to, inter alia, investigate possible flaws and the rationale for such direct and indirect application of certain insider trading theorem in Zimbabwe. Thereafter, some recommendations in respect thereof are provided.

Design/methodology/approach

A qualitative research methodology is used in the entire paper.

Findings

It is hoped that the recommendations in the paper will be used by the relevant policymakers to enhance the curbing of insider trading in Zimbabwe.

Research limitations/implications

The paper does not use an empirical research.

Practical implications

It is hoped that the recommendations in this paper will be used by the relevant policymakers to enhance the curbing of insider trading in Zimbabwe.

Social implications

It is hoped that the recommendations in this paper will be used by the relevant policymakers to enhance the curbing of insider trading in Zimbabwe.

Originality/value

This paper is original research on the theoretical aspects of the regulation of insider trading in Zimbabwe.

Details

Journal of Financial Crime, vol. 29 no. 1
Type: Research Article
ISSN: 1359-0790

Keywords

Article
Publication date: 31 October 2023

Júlio Lobão and Sofia P. Baptista

This study aims to examine the deterrent effect of the Market Abuse Directive (MAD) introduced in the European Union in 2003. The purpose is to evaluate whether the Directive has…

Abstract

Purpose

This study aims to examine the deterrent effect of the Market Abuse Directive (MAD) introduced in the European Union in 2003. The purpose is to evaluate whether the Directive has resulted in significant changes in pre-bid stock price run-ups observed in mergers and acquisitions within the Portuguese, Spanish and Greek stock markets.

Design/methodology/approach

The study analyzes a sample of 199 mergers and acquisitions in the aforementioned stock markets. The magnitude of pre-bid stock price run-ups is investigated as an indicator of illegal insider trading. The effects of the MAD, toehold positions of bidders and industry similarity between firms involved in the deals are assessed using statistical analysis.

Findings

The study’s findings indicate that the MAD has been ineffective in deterring investors from trading on non-public information. Pre-announcement price run-ups remain significant, suggesting ongoing illegal insider trading practices. Additionally, the research reveals that pre-bid stock price run-ups tend to be lower when bidders have established a larger toehold position in the target and when the firms involved in the deal belong to the same industry.

Originality/value

This study contributes to the existing literature by providing empirical evidence on the ineffectiveness of the MAD in deterring illegal insider trading. The findings highlight the limitations of increasing penalties without an effective monitoring system in place. Furthermore, the study identifies additional factors, such as toehold positions and industry similarity, that influence the magnitude of pre-announcement price run-ups in mergers and acquisitions.

Details

Studies in Economics and Finance, vol. 40 no. 5
Type: Research Article
ISSN: 1086-7376

Keywords

Article
Publication date: 22 February 2008

Jaemin Kim and Nikhil Varaiya

Due to insufficient disclosure on open market share repurchases in the USA, at any given point in time, outside shareholders have no knowledge of whether their firm is executing…

1168

Abstract

Purpose

Due to insufficient disclosure on open market share repurchases in the USA, at any given point in time, outside shareholders have no knowledge of whether their firm is executing open market share repurchase trades. It is hypothesized that such information disparity between outside shareholders and insiders of a repurchasing firm creates asymmetric opportunities for insiders to time their sell trades in a period when the firm is engaged in buyback trading of its own shares. Insiders have an incentive to sell when the firm is in the market supporting the price by repurchasing its shares. The purpose of this study is to examine this hypothesis (insider timing hypothesis) by investigating insiders' trading activities during the periods of corporate share buyback trading.

Design/methodology/approach

Multiple regression analyses are used to explore relations among trades by insiders, corporate share buyback trades, and a number of other control variables.

Findings

This study finds evidence that insiders do increase the net number of shares sold in a fiscal quarter when the firm is in the market engaged in share buyback trading.

Originality/value

This study suggests the possibility of insiders' opportunistic trading behavior during the periods of corporate open market share buyback trading.

Details

Review of Accounting and Finance, vol. 7 no. 1
Type: Research Article
ISSN: 1475-7702

Keywords

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

Article
Publication date: 1 January 2014

Laura L. Hansen

The purpose of this viewpoint, case study analysis paper is to assist in understanding how history repeats itself in the case of insider trading, even with regulatory…

1279

Abstract

Purpose

The purpose of this viewpoint, case study analysis paper is to assist in understanding how history repeats itself in the case of insider trading, even with regulatory intervention.

Design/methodology/approach

Qualitative methodology approach, using interviews of some of the watchdogs of Wall Street (SEC, US Attorney's Office) during the insider trading scandals of the 1980s. Key themes including ambiguity of money, regulation, and the networks of financial institution professionals are discussed.

Findings

Findings suggest that regulation is difficult if nearly impossible, in the face of limited resources and regulatory ambiguity.

Practical implications

This paper suggests a network approach to regulators, corporate decision makers, and academics in order to understand the structure of insider trading conspiracies.

Originality/value

Continues the tradition of qualitative research in a niche of white-collar crime that is more often approached with strict statistic analysis. Value is that the data are allowed to “speak for themselves” and patterns of structure are allowed to emerge without prior biases of hypotheses.

Details

Journal of Financial Crime, vol. 21 no. 1
Type: Research Article
ISSN: 1359-0790

Keywords

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 hours a day…

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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