Abstract
While the theoretical debate on the real effect of insider trading restrictions is long-lasting andinclusive, there is little empirical evidence on how insider trading regulation affects corporateinvestment behavior. This is even surprising given that insider trading regulation is one of themost important regulations of securities markets. Relying on the data of insider trading lawsenforcement provided by Bhattacharya and Daouk (2002), we find that insider tradingrestrictions have the statistically and economically significant effect on the improvement ofcorporate investment efficiency, as reflected in increases in the investment-Q sensitivity anddecreases in the investment-cash flow sensitivity. The effect is more pronounced in countrieswith better institutional infrastructures such as legal protections of investors, judicial efficiency,and accounting information and disclosure quality. Finally, future accounting performance ismore positively associated with investment after the enforcement of insider trading laws. Wecontribute to the international business literature by providing additional evidence on howcountry-level institutional environments affect corporate investment decisions.
| Original language | English |
|---|---|
| Publication status | Published - 15 Dec 2011 |
| Event | Invited Research Seminar at the University of Auckland - Auckland, New Zealand Duration: 15 Dec 2011 → 15 Dec 2011 |
Conference
| Conference | Invited Research Seminar at the University of Auckland |
|---|---|
| Place | New Zealand |
| City | Auckland |
| Period | 15/12/11 → 15/12/11 |