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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.

The purpose of this study is a comparison of anti-insider trading regulations in the European Union (EU) and in Brazil.

The subject of the comparison are three key elements that define the shape of the protection against insider trading, namely, the definition of inside information, the definition of insiders and the kinds of behaviours that are forbidden.

There are both differences and similarities between EU and Brazilian legislations on insider trading. The main discrepancies found in the three foci of the analysis seem to relate strongly to the different rationales for the prohibition of insider trading adopted in the two legal systems. In the EU, market egalitarianism and thus the parity of information, are the central concepts, whereas fiduciary duties originally constituted the point of reference in Brazil, although it has been losing importance over time owing to subsequent changes in the legislation. In sum, while anti-insider trading regulations in the EU have a well-defined identity, in Brazil their policy basis seems to be in the process of redefinition.

As of the time of submission of this study no published academic works dedicated substantially to a comparison of the anti-insider trading legislation of the EU and Brazil could be found.

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.

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.

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.

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.

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.

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.

This study aims to investigate the impact of mandatory audit partner rotation (MAPR) on Chinese listed firms’ insider trading, as well as the moderating effects of firm characteristics on this impact. The economic mechanism behind this impact is also explored.

This study conducts a regression analysis on firms associated with mandatory and voluntary audit partner rotation based on 2009–2019 firm data and examines whether corporate insiders of these two types of firms increase their share sales within 12 months before their financial statements are submitted to a new rotated auditor.

Client firms’ corporate insiders increase their share sales within 12 months before their financial statements are submitted to a new mandatory rotated auditor. In addition, such an association is less pronounced for client firms that changed from Big 4 auditors to those with higher financial constraints. This is more pronounced for client firms with higher information asymmetry. The economic mechanism of the finding is that is the MAPR implementation reduces earnings management activities from client firms. Moreover, client firms’ buy-and-hold stock returns decline in the first year after MAPR.

This study should assist investors, corporate shareholders and Chinese policymakers. Investors can be well protected through the adoption of MAPR because upcoming auditors enhance the audit quality of clients by restraining managers’ manipulation of reported earnings and declining firms’ insider trading afterwards. Investors, Chinese policymakers and corporate shareholders should pay more attention to firms’ financial report quality, auditor selection, financial situation, corporate governance and the information environment. Explicitly, firms with less transparent financial report quality, non-big 4 auditors and fewer financial constraints are more likely to be involved in insider trading.

To the best of the authors’ knowledge, none of the extant studies have examined the impact of MAPR on insider sales. This study extends the research on the effect of the audit process on firm market performance by investigating the impact of audit partner rotation policy on insider trading behaviors.

The purpose of this study is to examine the effect of insider trading on analyst coverage and the properties of analyst earnings forecasts. Given the central role of analysts for information diffusion in stock markets, advancing understanding of the role insider trades may play in analyst coverage and forecasts, especially in the context of a changing legal environment (e.g. the implementation of Regulation Fair Disclosure [Reg FD]), should be a worthy goal.

To address the research questions, the authors run regressions in which the authors identify and control for as many possible determinants of analyst coverage and forecasts (e.g. firm size, information asymmetry and earnings performance) that are correlated with insider trades. To alleviate endogeneity concerns, the authors use three approaches. First, the authors extend the sample period to the post-Reg-FD period in which managers are not allowed to provide private information to financial analysts. Second, the authors measure analyst coverage in a window that is lagged by insider trades. Third, the authors employ firm-fixed-effects regressions in all the multivariate tests. Finally, following Larcker and Rusticus (2010), the authors conduct the impact threshold for a confounding variable test to assure that all regression analyses are indeed immune to the potential correlated-omitted-variable bias.

The authors find that the level of analyst coverage is positively related to the intensity of insider trades and that analyst coverage is more strongly associated with insider purchases than with insider sales. The authors also find that the positive association between analyst coverage and insider trades is less pronounced after the passage of Reg FD. Further investigations reveal that analysts revise their earnings forecasts upward following insider purchases, the informativeness of analyst forecast revisions significantly increases following insider purchases and optimistic bias in analyst forecast revisions is reduced as a result of insider purchases; the authors do not find similar evidence for insider sales.

A large body of insider trading literature (Johnson et al., 2009; Badertscher et al., 2011; Thevenot 2012; Skaife et al., 2013; Billings and Cedergren 2015; Dechow et al., 2016) provides evidence that insiders actively trade on their private information, such as their foreknowledge of price-relevant corporate events. This literature suggests that insider trades are potentially value-relevant and are informative about a firm’s future prospects. However, less research attention has been paid to investigating how insider trades might affect market participants’ (especially sophisticated participants’) behavior. This study contributes to understanding the role that insider trading may play in shaping analyst behavior.

Prior research (Frankel and Li, 2004; Lustgarten and Mande, 1995; Carpenter and Remmers, 2001; Seyhun, 1990) maintains that insider sales are less informative about a firm’s future prospects than are insider purchases because insider sales might take place for the liquidity and diversification purposes. By probing the stock price responses to insider selling activities, Lakonishok and Lee (2001), Jeng et al. (2003) and Fidrmuc et al. (2006) infer that insider selling is not informative about future firm performance. However, for such an inference, the authors cannot rule out the possibility that insider sales do convey value-relevant information, but the stock market does not react correctly to such trading information (Beneish and Vargus, 2002). Because the authors focus on examining analysts’ responses to insider sales, and analysts are supposed to be sophisticated in information processing, this study adds more compelling evidence for the notion that insider sales convey less information about a firm’s future prospects than do insider purchases.

There is an ongoing debate about the benefits and drawbacks of insider trading. Opponents of insider trading view insider trades as inequitable and immoral and assert that restricting insider trades curbs resource misallocation and benefits the whole society. Proponents contend that insider trading accelerates the price discovery process, increases market efficiency (Leland, 1992; Bernhardt et al., 1995; Choi et al., 2016) and may even play a role in rewarding and motivating executives (Roulstone, 2003; Denis and Xu, 2013). The authors add to this debate by documenting that insider trading increases the amount of information valuable to analyst research activities and helps enhance analyst services.

To the best of the authors’ knowledge, this study is the first to offer firm-level evidence of a positive association between insider trades and analyst coverage. By accounting for the post-Reg-FD regime, this paper is also the first to provide evidence on how analysts, in the absence of access to management’s private information because of the regime change by Reg FD, react to insider trades.

The purpose of this paper is to uncover the essence of insider trading, explain why insider trading law is ineffective and provide implications of the effectiveness of the law.

This conceptual paper offers three propositions. The first two are based on a literature review of 62 articles in empirical research to develop an understanding of the essence of insider trading and identify the areas in which insider trading is ineffective. This analysis is used in the third proposition to provide a direction in suggesting effective measures to improve insider trading law.

The essence of insider trading is that corporate insiders exercise informational monopoly power over their trades. This understanding explains why insider trading law is ineffective because it has not taken away the monopoly power that corporate insiders possess and exercise. This understanding also leads to three antitrust suggestions aimed at improving insider trading law.

The findings may provide assistance to the lawmakers and regulators to make insider trading law more effective and enforcement more simplified.

This paper is of value to other researchers attempting to understand the essence of insider trading and to policymakers concerned about the existence of monopolistic behavior in the equity market and income inequality due to corporate insiders’ trading profit.

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.

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

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.

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.

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.

The aim of this paper is to examine how informed traders, i.e. transient institutional investors that actively trade on information to maximize investment profits, use insider trading signals in addition to accounting numbers to mitigate future abnormal returns.

Using a sample of 44,843 firm‐quarters from 1988 to 2001 in the USA, the paper examines how informed investors use insider trading signals and the extent to which the use of these signals by informed investors impacts insiders' future abnormal returns from trading.

This study finds that the change in transient institutional ownership in the next‐quarter is positively associated with net insider trading in the current quarter, after controlling for accounting information (including total accruals, unexpected earnings, etc.). In addition, this study finds that insider profits decrease in transient institutional ownership, consistent with the notion that trading by informed investors limits insider profits.

The institutional ownership data are only available on a quarterly basis, which may not capture institutional investors' immediate response to insider trading signals.

This study provides systematic evidence on how informed traders use insider trading signals. This study adds to existing knowledge of the information environment of institutional investors by showing that transient institutional investors use insider trading signals in addition to accounting information in making investment decisions. Moreover, this study contributes to the literature on the determinants of insider profits by providing evidence that informed trading by investors has incremental power to explain insider profits.

The purpose of this study is to examine the effectiveness of financial market rules in protecting minorities.

The study compares two alternative disclosure rules on insider trading, namely, the market abuse directive (Directive 2004/72/EC), inspired from the United State (US) insider trading regulation enacted by the Sarbanes–Oxley act and the transparency directive enacted by the European (Directive 2004/109/EC) dealing with the crossing of the shareholding threshold. To investigate which one is more effective in signaling reserved information, and thus in reducing information asymmetry, the authors run an event study on the French context, where both regulations are adopted. The data were hand collected from the French stock exchange securities commissions during the two years following the implementation of the two regulations in 2004. The final sample consists of 363 insiders trading and 35 crossing shareholding thresholds for 10 top French firms during the period 2006-2007.

The results show that the French market reacts significantly to insider trading, but poorly to the crossing shareholding thresholds. Abnormal returns are greater after insider purchases than after crossing up thresholds. These findings support the superiority of the insider disclosure regulation, as it has better information content and provides better protection to minorities.

The study contributes to the corporate governance literature by comparing two disclosure-trading policies. The authors conclude that regulation of disclosure of insider trading along the lines of US disclosure rules is more informative to the market and thus more relevant and important than disclosure of cross-threshold trades.

The study contributes to the corporate governance literature by comparing two disclosure-trading policies. The authors conclude that regulation of disclosure of insider trading along the lines of US disclosure rules is more informative to the market and thus more relevant and important than disclosure of cross-threshold trades. This finding can be helpful for the securities lawmakers and regulators in the process of insider trading law enforcement.

Previous researchers approached the question of insider trading focusing on the identity of insiders. In the research, the authors address the question from another perspective, namely, the crossing of thresholds. Another methodological contribution of the study is the use of a market model that incorporates GARCH (generalized autoregressive conditional heteroskedastic) effect and time-varying systematic risk parameter (β), which is recommended to tackle the classical event study problem of detecting the exact timing of the event.