Does Cross-Listing Mitigate Insider Trading?

Abstract

This paper examines whether the increased legal and reputational constraints associated with cross-listing in the U.S. reduces the propensity of insiders to trade on private information. We find that the directors in both domestic and cross-listed firms trade on private information, particularly when they sell their holdings, as their trades generate negative and significant abnormal returns regardless of the cross-listing level, and the post-event returns in exchange-listed and OTC-listed firms where the regulation is expected to be less binding are relatively similar. We also show that the impact of the Sarbanes-Oxley Act (SOX) is limited. These results provide weak evidence for the impact of cross-listing on the propensity of insiders to trade on private information.