Ethical Reasoning and the Use of Insider Information in Stock Trading |
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Authors: | Mohammad Abdolmohammadi Jahangir Sultan |
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Institution: | (1) Bentley College, 175 Forest Street, Waltham, MA, 02452, U.S.A. |
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Abstract: | The cognitive developmental theory of ethics suggests that there is a positive relationship between ethical reasoning and ethical behavior. In this study, we trained a sample of accounting and finance students in performing competitive stock trading in our state-of-the-art trading room. The subjects then performed trading of stocks under two experimental conditions: insider information, and no-insider information where significant performance-based financial awards were at stake. We also administered the Defining Issues Test (DIT). Ethical behavior, as the dependent variable was measured in a binary scale: whether the subjects used insider information for trading of stocks or not. Ethical reasoning as measured by the DIT P-score indicated statistically significant effect on ethical behavior. The results have important implications for recruitment and training of professionals engaged in the use of financial markets for securities trading. |
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Keywords: | ethics reasoning insider information stock trading |
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