University of Michigan Legal Working Paper Series
University of Michigan John M. Olin Center for Law & Economics Working Paper Series
Do Investors in Controlled Firms Value Insider Trading Laws? International Evidence
Abstract
This article characterizes insider trading in controlled firms as an agency problem. Using a standard agency model of corporate value diversion through insider trading by a controlling shareholder, I derive testable hypotheses about the relationship between corporate value and insider trading laws. The article tests these hypotheses using cross-sectional data on firms from a group of developed countries. The results show that stringent insider trading laws and enforcement are associated with greater corporate valuation among firms in common law countries, a result that is consistent with the claim that insider trading laws can mitigate agency costs. In contrast, insider trading laws and enforcement are generally insignificant to corporate valuation among firms in civil law countries. These results are robust to alternative regression specifications and to controlling for a variety of relevant factors and they suggest that the firm-level impact of insider trading regulation may depend on the local context in which it is applied.
Subject Area
International Law
Recommended Citation
Laura N. Beny,
"Do Investors in Controlled Firms Value Insider Trading Laws? International Evidence"
(October 2007).
University of Michigan Legal Working Paper Series.
University of Michigan John M. Olin Center for Law & Economics Working Paper Series.
Working Paper 61.
http://law.bepress.com/umichlwps/olin/art61
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