Insider Trading Activity Research Articles

Analysis of the Influence of the Announcement of Stock Splits on Insider Trading Indicators in the Indonesian Stock Exchange Environment for the 2013-2023 Period

The phenomenon of stock split is a corporate action to increase the number of shares outstanding in the market with the aim of making the stock price more affordable for investors. This practice is often carried out by company management to enhance stock liquidity and attract investor interest without necessarily increasing net income. However, although Stock Splits are generally considered a positive policy, some studies indicate that in some cases, Stock Splits can be exploited for insider trading activities, especially in markets with weak regulations or emerging markets. The aim of this research is to find out whether there are indicators of insider trading from stock split policies based on similar behavior in capital markets where capital market regulations are still not well regulated ( emerging markets ). By using the event study method, this research did not find any indication of insider trading because there was no cumulative abnormal return in the positive direction before the stock split was executed. By using multiple regression analysis, this research confirms that there is no indication of insider trading which is influenced by the level of state ownership, small company asset size and the tendency to split shares with a high split ratio as has been tested by previous research.

Social media, investor-company interaction and insider trading profitability: Evidence from China

The emergence of social media enables minority shareholders to participate in corporate governance by making their voice heard. This study examines the effect of social media interaction between minority shareholders and companies on insider trading profitability. Using the “Easy interaction” platform in China, we find robust evidence that social media interaction significantly reduces the profitability of insider trades. This negative effect is stronger for firms with higher management shareholdings, poorer information environment, and less government involvement. Overall, our findings indicate that social media can play a role in corporate governance by restricting the profits of opportunistic insider trading activities.

Overview analysis of the regulation of insider trading in Zimbabwe during the corona virus pandemic

PurposeIt 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/approachA qualitative research methodology is used through the analysis of relevant legislation and case law.FindingsIt is hoped that the findings and recommendations made in this study will be considered by the Zimbabwean policymakers.Research limitations/implicationsThe study does not use empirical research methodology.Practical implicationsThe findings and recommendations made in this study could enhance the combating of insider trading activities in Zimbabwe.Social implicationsThe 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/valueThe study provides original research on the regulation and combating of insider trading activities in Zimbabwe.

The dual purpose of insider trading: Signaling quality and battling shorts

This paper contributes to explaining the benefit-cost puzzle of insider trading activity. We show that net insider purchase is a convex function of the quarterly earnings surprise decile in terms of mean, median, and purchase frequency. The convexity suggests that the magnitude of net insider purchases is positively associated with information asymmetry. Further evidence indicates that the majority of insider purchases are not designed to earn abnormal returns; instead, they signal firm quality when firms are in adverse situations and fight against short sellers when short interest is high.

Equity overvaluation, insider trading activity, and M&A premium: Evidence from China

Based on catering theory and M&A arbitrage theory, this paper focuses on the motivation and economic consequences of high premium M&A in China's capital market. The main research conclusions are as follows: First, the more equity overvaluation, the higher the merger premium and the short-term excess market return. Second, the more insider trading behaviour after equity overvaluation, the higher the merger premium and the short-term excess market return. Third, the greater the short-selling pressure after the equity overvaluation, the lower the merger premium and the weaker the short-term excess market return. Finally, this paper studies the economic consequences of M&A after equity overvaluation, and finds that M&A driven by equity overvaluation can only improve M&A performance in the current year, but cannot achieve long-term synergies. Based on the theory of M&A arbitrage, this paper studies the explanation mechanism of equity overvaluation to high-premium M&A in China's capital market, provides new evidence for executive's agency behaviour in M&A. This paper has important policy implications for the healthy development of M&A in the current emerging capital market.

Tone emphasis and insider trading

In this study, we examine whether emphasized tone in earnings releases systematically predict managers' insider trading activities in the post earnings releases periods and whether managers' choices of tone placement in earnings releases are motivated by opportunistic incentives. We find that, holding constant the net tone of the overall document, managers make more insider sales (purchases) immediately after earnings releases when positive (negative) tone is presented more prominently in the document. In addition, we document that the relation between tone emphasis and the observed insider trading activities is more (less) pronounced when insiders have greater information advantage or when a firm's overall information environment is more opaque (when a firm has better corporate governance). Overall, our findings suggest that managers use narrative characteristics strategically to facilitate their insider trading and achieve personal gains.

Insider trading

This paper describes a dataset capturing insider trading activity at publicly traded companies. Investors and investment analysts demand this information because executives, directors and large shareholders are expected to have more intimate knowledge of their company’s prospects than outsiders. Insider stock sales and purchases may reveal information about the firm’s business not disclosed in financial statements. They may also convey new information predictive of stock price movements if insiders can better interpret public information about the firm. Since mid-2003, the Securities and Exchange Commission has made these insider trading reports available to the public in a structured format; however, most academic papers use proprietary commercial databases instead of regulatory filings directly. This makes replication challenging as the data manipulation and aggregation processes are opaque and historical records could be altered by the database provider over time. To overcome these limitations, the presented dataset is created from original regulatory filings; it is updated daily and includes all information reported by insiders without alteration.

Deterrence or Displacement? Evidence from Insider Trading Activity after SEC Enforcement Actions

Deterrence or Displacement? Evidence from Insider Trading Activity after SEC Enforcement Actions

Corporate Governance and Ownership Structure on Illegal Insider Trading Activities in Malaysian Public Listed Companies

Corporate Governance and Ownership Structure on Illegal Insider Trading Activities in Malaysian Public Listed Companies

Comparative study of disgorgement and disgorgement fund regulations in Indonesia, the USA and the UK

PurposeThe purpose of this paper is two-fold: to analyze the legal issues on disgorgement and disgorgement funds in Indonesia, the USA and the UK and to construct the ideal law regarding disgorgement and disgorgement fund.Design/methodology/approachThe type of legal research in this paper is normative legal research. The research approach used is a comparative approach and a legal approach. The legal materials used are all regulations on the disgorgement law and the disgorgement fund that apply in Indonesia, the USA and the UK. The technique of collecting legal materials is done by using library research techniques.FindingsThe rapid growth of the capital market in Indonesia still faces various legal issues such as various market manipulations, insider trading and illegal investment management activities. Based on the results of a comparative study, Indonesia does not yet have a calculation mechanism regarding the imposition of disgorgement on violators. Unlike Indonesia, the USA has the rules of practice and rules on fair funds and exchange commissions, and the UK has the decision procedure and penalties manual, which regulates the mechanism for calculating the imposition of disgorgement. Indonesia is solely able to use administrative action in imposing disgorgement, while in the USA and the UK, it can be through courts or direct administrative actions. These legal issues have resulted due to the lack of confidence by international investors and the growth of the investment climate in Indonesia itself.Research limitations/implicationsThis study examines the regulation of disgorgement and disgorgement funds in Indonesia, the USA and the UK. However, the focus of research in this paper is limited to legal issues that occurred in Indonesia.Practical implicationsThe results of this study may help to construct the ideal regulations on disgorgement and disgorgement funds in various countries and protect the capital market of the investors.Social implicationsThe results of this study are expected to be helpful for the investment climate in various countries, especially developing countries.Originality/valueThe ideal legal construction regarding disgorgement, namely, parties to the mechanism for imposing disgorgement; disgorgement filing mechanism; sanctions in disgorgement; disgorgement fund sources; provider of fundholding accounts; mechanism for calculating disgorgement imposition; disgorgement fund distribution mechanism.

CEO Social Media Presence and Insider Trading

Prior research finds that online social media usage may lower self-control and encourage indulgent behavior in laboratory subjects. We find that corporate CEOs show similar tendencies: CEOs with online social media presence are more likely to succumb to lower self-control and abuse their information advantage to profit from unethical insider trades. Specifically, CEOs’ social media presence strongly predicts their insider trading activity in terms of incidence, intensity (amount and frequency), and profitability. We further find that the effect is driven by insider buys (not by sells) and is more pronounced for opportunistic buys which tend to contain more material non-public information.

The information content of managerial insider trading: evidence from analyst forecasts

PurposeThis 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/approachPooled 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.FindingsInsider-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 implicationsRegulators 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/valueThe 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.

Theoretical aspects of insider trading regulation in Zimbabwe

PurposeInsider 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/approachA qualitative research methodology is used in the entire paper.FindingsIt 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/implicationsThe paper does not use an empirical research.Practical implicationsIt 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 implicationsIt 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/valueThis paper is original research on the theoretical aspects of the regulation of insider trading in Zimbabwe.

Insider Trading, Competition, and Real Activities Manipulation

We consider a setting where managers manipulate the firms’ real activities in anticipation of insider trading opportunities. Managers choose strictly higher production quantities than the quantities chosen absent insider trading, implying lower firm profit but higher consumer surplus. Through comparative statics, we show the overproduction is mitigated by the degree of competition in the industry, the manager’s current equity stake in the firm, and the precision of cost information. We also analyze the effects of insider trading in several extensions including asymmetric ownership structure, potential horizontal merger, and common market maker. This paper was accepted by Shiva Rajgopal, accounting.

Culture and the regulation of insider trading across countries

We find that individualistic countries regulate insider trading activities more intensely. The result is robust to controlling for alternative culture variables, additional controls, and instrumental variable analysis. We also document that individualism's effect is magnified in democratic countries. In addition, we study the economic and financial consequences of individualism, insider trading regulation, and its enforcement. The analysis suggests that individualism and the enforcement of insider trading regulation promote financial development. Interaction effects reveal that individualism and insider trading regulation serve as complements to promote financial development. These findings contribute to the insider trading debate since regulation alone may not be the primary determinant of market efficiency. Combined, our results challenge prior works concluding that individualism is anti-regulation.

Female insiders' ethics and trading profitability

We provide the evidence of ethical differences between female and male top managers and insiders in conducting profitable trades with their own company stocks. Using a large sample of Chinese insider trading activities, we find that female insiders trade less profitably, which can be attributed to their higher ethical values. This relationship is robust for various profitability measures and holds after addressing potential endogeneity bias. We also provide evidence that our findings are not explained by female insiders' informational disadvantage, risk aversion, managerial ability, trading experience or concerns for differential legal consequences. Our study provides a more direct evidence on the ethical differences in gender in the context of insider trading.

Trading Prior to the Disclosure of Material Information: Evidence from Regulation Fair Disclosure Form 8‐Ks*

ABSTRACTRegulation Fair Disclosure (Reg FD) Form 8‐K filings provide a venue where managers release information to the market as a whole that they designate as being material. Using this setting, we study trading patterns immediately prior to the public disclosure of material information. We offer three main results. First, using both intraday and daily trading data, we find abnormal trading volume of 21 percent (13 percent) in the hour (day) prior to the public disclosure, respectively. Second, we find that this pre‐disclosure abnormal trading volume is concentrated in firms that are smaller, have more growth opportunities, issue fewer voluntary disclosures, and have weaker external monitoring. Finally, we find that this pre‐disclosure volume is concentrated in subsamples in which the information relates to a firm's material contracts, a firm holds investor/analyst conferences, and there is insider trading activity in a firm's shares. Our results do not concentrate in a small number of firms or industries, and do not appear to be explained by the form through which managers first release the material information (e.g., Form 8‐K, press release, website posting, or social media). Our results are also robust to controlling for the firm's other filings and peer filings that occur around the disclosure. Overall, the trading patterns we document may show that, inconsistent with the spirit of Reg FD, a subset of investors trade on information managers deem material prior to its broad, public release.

Did Real Estate Professionals Anticipate the 2007-2008 Financial Crisis? Evidence from Insider Trading in the REITs

This research examines whether real estate professionals detected the property bubble and foresaw the consequent financial crisis of 2007-2008. By analysing the insider trading activities within REITs from 1996 to 2010, we find that REIT insiders reduced their holdings significantly during the real estate boom period as early as 2004, before the financial crisis. Difference-in-difference analysis reveals that REIT insiders cashed out their positions more aggressively than insiders in real estate and construction firms. The findings support the informed trader hypothesis that managers and employees in REITs anticipated the burst of the real estate bubble and the imminent financial crisis, and shifted their wealth away from the real estate market to avoid potential losses. We find no evidence to support the biased belief hypothesis (Cheng et al., 2014) that REIT insiders were over-optimistic during the real estate boom period or that their inside trading behaviour was affected by local market performance.

Labor Voice in Corporate Governance: Evidence From Opportunistic Insider Trading

This study examines whether labor plays a role in corporate governance by deterring opportunistic insider behavior. Results suggest that firms with organized labor experience statistically significant declines in opportunistic insider trading activity and profitability. We show three economic mechanisms that explain labor's disciplinary effect on opportunistic insider trading behavior: employee welfare, activist union-affiliated institutional investors, and media and political support. Further analyses suggest that labor's corporate governance reduces the incidence of illegal insider trading, enhances firm productivity and performance, and lowers insider trades' return predictability.

The Pros and Cons for Insider Trading Regulation in Zimbabwe

The debate on the regulation of insider trading has existed for several decades and it remains unresolved to date. For instance, proponents for the deregulation of insider trading argue that it should not be treated as an offence while proponents for the regulation of insider trading contend that it is an offence that could, inter alia, give rise to a host of problems such as poor market efficiency, poor market integrity and low public investor confidence in the financial markets of any country. It appears the Zimbabwean policy makers also view insider trading as an offence in the Zimbabwean financial markets. Consequently, insider trading is currently outlawed in Zimbabwe. Notably, insider trading is mainly prohibited to enhance public investor confidence, market efficiency and market integrity in the Zimbabwean financial markets. Accordingly, insider trading activities are statutorily prohihited in Zimbabwe under the Securities Act 17 of 2004 [Chapter 24:25] as amended (Securities Act). Given this background, the article investigates the merits and demerits of the insider trading regulation and deregulation debate. The authors submit that adequate insder trading laws that are consistently enforced by the relevant enforcement authorities and other key role-players could effectively combat insider trading activities in the financial markets of any country.