Political Connections and Insider Trading
35 Pages Posted: 30 Sep 2016 Last revised: 3 Dec 2016
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Political Connections and Insider Trading
Political Connections and Insider Trading
Date Written: August 30, 2016
Abstract
This paper investigates whether political connections affect individuals’ propensity to engage in illegal activities in financial markets. We use the French 2007 presidential election as a plausibly exogenous change in the value of political connections in a difference-in-differences research design. Specifically, we examine the behavior of directors of publicly listed companies that are connected to the future President through campaign donations or direct friendships, relative to that of other non-connected directors before and after the election. We find that after the election, insider purchases by connected directors experience larger abnormal returns and that connected directors are more likely not to comply with trading disclosure requirements and to trade closer to major corporate events.
Keywords: Insider Trading, Politics of Financial Markets, Securities Regulation
JEL Classification: G14, G18, G38, K22
Suggested Citation: Suggested Citation