Abstract
We examine whether public enforcement of U.S. insider trading laws affects price discovery. Examining insider trading civil cases filed by the SEC from 2003 to 2011, we find that the price impact on insider trading days is much smaller than the effect documented by Meulbroek (1992) for the 1980s, consistent with increased fear of prosecution. Moreover, we find that pre-announcement anticipatory run-up in comprehensive samples of takeover bids and earnings announcements is negatively related to resource-based measures of public enforcement intensity, suggesting that aggressive enforcement deters illegal activity.
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