Corporate Governance Rules and Insider Trading Profits

Profitability of insider trading in Europe: A performance evaluation approach

“…Looking first at purchase transactions, the anti-self-dealing index measuring the overall investor protection is statistically significant for three out of four horizons, with a positive coefficient indicating that insiders' realizable returns are larger in countries with stronger investor protection. The results are in line with the findings in Cziraki et al (2014) and Fidrmuc et al (2013) discussed above. Trading costs come significant at the 10 percent level or better also for three holding horizons, and consistently with the theoretical predictions we find a positive link between insider returns and trading costs in the country.…”

“…The result may indicate that insiders in better governed firms are more restricted in trading on the basis of material information at the expense of outside investors. On the other hand, Cziraki et al (2014) find that in Dutch firms with better investor protection standards abnormal returns following insider transactions are higher. They argue that profits from legal insider trading substitute for sacrificed benefits from investor expropriation through other channels.…”

“…They argue that profits from legal insider trading substitute for sacrificed benefits from investor expropriation through other channels. As opposed to firmlevel tests within one country samples in Ravina and Sapienza (2010) and Cziraki et al (2014), Fidrmuc et al (2013 provide a cross-country analysis and find that abnormal stock price behavior following insider transactions is positively correlated with investor protection in a country. They interpret insider trades as information events and argue that insiders' actions are more trustworthy and informative in a better corporate governance environment which leads to higher abnormal returns following purchases.…”

Executives' Legal Records and the Deterrent Effect of Corporate Governance

“…Dai et al () find that better‐governed firms (based on measures of board independence and institutional ownership) have lower insider profits from sales. Considering the Dutch market, Cziraki et al () find that insider trading profits are actually higher when shareholder rights are stronger (i.e., they are not restricted by anti‐shareholder mechanisms, such as preference shares or poison pills). They argue that managers are likely to seek greater insider trading profits when they cannot exploit other private benefits due to stronger shareholder rights.…”

Corporate Governance and Insider Trading

“…Moreover, their main research question is not to examine the relation between corporate governance and profits earned by insiders, but to compare the trading performance of independent directors with that of other executives. Recently, using Dutch data, Cziraki et al (2014) show that insiders are more likely to exploit private information when they cannot reap large private benefits of control due to stronger corporate governance standards related to anti-shareholder mechanisms. This effect of corporate governance on the informativeness of insider trading is higher for insider sales than for insider purchases.…”