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Do voluntary corporate restrictions on insider trading eliminate informed insider trading?
Institution:1. College of Business, Korea Advanced Institute of Science and Technology, 85 Hoegiro, Dongdaemun-gu, Seoul 130-722, Republic of Korea;2. Department of Finance, David Eccles School of Business, University of Utah, 1655 East Campus Center Drive, Salt Lake City, UT 84112-9301, USA;3. World Bank Group Singapore Office, World Bank, 10 Marina Boulevard, 018983, Singapore;4. Monetary Authority of Singapore, 10 Shenton Way, MAS Building, 079117, Singapore;1. Macquarie Graduate School of Management, Macquarie University, NSW 2109, Australia;2. York University, Schulich School of Business, 4700 Keele Street, Toronto, Ontario M3J 1P3, Canada;3. John Carroll University, Boler School of Business, 1 John Carroll Boulevard, University Heights, OH 44118, United States;1. University of Sydney, Australia;2. University of Memphis, United States;1. Hong Kong University of Science and Technology, Hong Kong;2. Singapore Management University, Singapore;3. Hong Kong Polytechnic University, Hong Kong;1. University of Hamburg, Faculty of Business, Moorweidenstrasse 18, 20148 Hamburg, Germany;2. University of Vienna, Faculty of Business, Economics, and Statistics, Oskar-Morgenstern-Platz 1, 1090 Vienna, Austria
Abstract:We investigate whether voluntary corporate restrictions on insider trading effectively prevent insiders from exploiting their private information. Our results show that insiders of firms with seeming restrictions on insider trading continue to take advantage of positive private information while being more cautious when exploiting negative private information. The results suggest that insiders continue to exploit their informational advantages in a way that minimizes their legal risk. We also find that the degree of information asymmetry is significantly lower in firms with restriction policies and that corporate governance significantly affects firms' decisions to adopt these policies.
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