Insider trading restrictions and corporate risk-taking

This paper examines the effect of insider trading restrictions on corporate risk-taking. Using a cross-country sample of 38 countries over the 1990 to 2003 period, we find that corporate risk-taking is positively related to insider trading restrictions. This finding is robust to alternative regressi...

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Bibliographic Details
Published in:Pacific-Basin finance journal 2015-11, Vol.35, p.125-142
Main Author: Kusnadi, Yuanto
Format: Article
Language:English
Subjects:
Cross-country study
Insider trading restrictions
Risk-taking incentives
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Summary:This paper examines the effect of insider trading restrictions on corporate risk-taking. Using a cross-country sample of 38 countries over the 1990 to 2003 period, we find that corporate risk-taking is positively related to insider trading restrictions. This finding is robust to alternative regression specifications and sample periods, to the use of alternative measures of insider trading restrictions and risk-taking incentives, and to controls for possible endogeneity. Further investigation suggests that the relation between insider trading restrictions and corporate risk-taking is influenced by cross-sectional differences in stock market development and legal origin, and that the increase in risk-taking is beneficial to firms. In conclusion, this paper highlights the role of insider trading restrictions as an important determinant of corporate risk-taking. •This study examines the effect of insider trading restrictions on risk-taking•More restrictive insider trading regulations are associated with higher risk-taking•The positive relation is influenced by stock market development and legal origin
ISSN:0927-538X
1879-0585
DOI:10.1016/j.pacfin.2014.11.004