TY - JOUR
T1 - Illegal insider trading
T2 - Commission and SEC detection
AU - Cline, Brandon N.
AU - Posylnaya, Valeriya V.
N1 - Publisher Copyright:
© 2019 Elsevier B.V.
PY - 2019/10
Y1 - 2019/10
N2 - Assessing illegal insider trading is challenging due to the nature of the activity. Researchers observe and evaluate only the detected portion of illegal trading, not all illegal transactions. This presents a problem when using traditional empirical techniques to investigate such activity. In our analysis we employ a bivariate probit model that takes into account the partial observability nature of insider trading and provides estimates for the determinants of both the commission and the detection of illegal insider trading. Among our findings, most notable is the deterrence effect of recent actions taken by the SEC to enforce insider trading laws. We highlight that insiders consider these actions when deciding to trade. We also illustrate the influence of the SEC's political structure on insider trading detection. We show that political party affiliation within the SEC, past indictments by the SEC, and SEC budget all play a crucial role in determining current prosecution.
AB - Assessing illegal insider trading is challenging due to the nature of the activity. Researchers observe and evaluate only the detected portion of illegal trading, not all illegal transactions. This presents a problem when using traditional empirical techniques to investigate such activity. In our analysis we employ a bivariate probit model that takes into account the partial observability nature of insider trading and provides estimates for the determinants of both the commission and the detection of illegal insider trading. Among our findings, most notable is the deterrence effect of recent actions taken by the SEC to enforce insider trading laws. We highlight that insiders consider these actions when deciding to trade. We also illustrate the influence of the SEC's political structure on insider trading detection. We show that political party affiliation within the SEC, past indictments by the SEC, and SEC budget all play a crucial role in determining current prosecution.
KW - Bivariate probit
KW - Illegal trading detection
KW - Insider trading
KW - Securities and Exchange Commission
UR - http://www.scopus.com/inward/record.url?scp=85065908390&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85065908390&partnerID=8YFLogxK
U2 - 10.1016/j.jcorpfin.2019.05.007
DO - 10.1016/j.jcorpfin.2019.05.007
M3 - Article
AN - SCOPUS:85065908390
SN - 0929-1199
VL - 58
SP - 247
EP - 269
JO - Journal of Corporate Finance
JF - Journal of Corporate Finance
ER -