Corporate Governance Rules and Insider Trading Profits

CentER Discussion Paper Series No. 2010-90 (revision of 2010-32)

ECGI - Finance Working Paper No. 299/2010

35 Pages Posted: 28 Aug 2010 Last revised: 27 Oct 2011

See all articles by Peter Cziraki

Peter Cziraki

University of Toronto - Department of Economics; Tilburg Law and Economics Center (TILEC)

Peter de Goeij

Tilburg University

Luc Renneboog

Tilburg University - Department of Finance; European Corporate Governance Institute (ECGI); Tilburg Law and Economics Center (TILEC)

Multiple version iconThere are 2 versions of this paper

Date Written: June 2011

Abstract

We investigate patterns of abnormal stock performance around insider trades on the Dutch market. Listed firms in the Netherlands have a long tradition of limiting shareholders rights. Using a change in corporate governance regulations as a natural experiment we show that governance rules have a causal effect on insider trading profits. Our results imply that insider transactions are more profitable at firms where shareholder rights are not restricted by anti-shareholder mechanisms. These findings are inconsistent with internal monitoring of insider trading. Rather, we explain this empirical pattern by imperfect substitution between insider trading profits and other private benefits of control.

Keywords: insider trading, corporate governance, anti-shareholder mechanisms, blockholder monitoring

JEL Classification: G14, G34, M52

Suggested Citation

Cziraki, Peter and de Goeij, Peter and Renneboog, Luc, Corporate Governance Rules and Insider Trading Profits (June 2011). CentER Discussion Paper Series No. 2010-90 (revision of 2010-32), ECGI - Finance Working Paper No. 299/2010, Available at SSRN: https://ssrn.com/abstract=1666753 or http://dx.doi.org/10.2139/ssrn.1666753

Peter Cziraki

University of Toronto - Department of Economics ( email )

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+1 416 946 3298 (Phone)

HOME PAGE: http://www.economics.utoronto.ca/petercziraki

Tilburg Law and Economics Center (TILEC) ( email )

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Peter De Goeij

Tilburg University ( email )

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Room I607
Tilburg, Noord-Brabant 5000 LE
Netherlands
+31134662083 (Phone)

Luc Renneboog (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Warandelaan 2
5000 LE Tilburg
Netherlands
+13 31 466 8210 (Phone)
+13 31 466 2875 (Fax)

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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