This noise makes it feasible, up to a point, to conceal deliberate opportunism from regulators such as the SEC.Empirically, there are some indications that insiders do exploit private information.Past research finds that insider purchases positively predict subsequent abnormal returns.
READ MORE David Hirshleifer is Professor of Finance at the University of California, Irvine.
This post is based on an article authored by Professor Hirshleifer and Usman Ali, Portfolio Manager at MIG Capital.
Related research from the Program on Corporate Governance includes Insider Trading via the Corporation by Jesse Fried (discussed on the Forum here.) In trading their firms’ stocks, insiders must balance the profits of informed trading before news, the scrutiny by regulators that such trading can engender, formal policy restrictions by firms of insider trading activities, and diversification and liquidity motivations for selling shares after vesting of equity-based compensation.
This mixture of motivations and constraints makes it is hard to decipher the information content of insider trades, especially because different trades may be intended to exploit news arriving at short or long horizons.
READ MORE The following post comes to us from Lee Biggerstaff of the Department of Finance at Miami University, David Cicero of the Department of Finance at the University of Alabama, and Andy Puckett of the Department of Finance at the University of Tennessee. Scandals at firms such as Enron and Health South fractured this foundation and motivated market participants to ask why executives and other employees at these firms misled investors.
Some regulators and experts conjecture that the roots of these scandals can be traced to the actions and attitudes of those at the very top of corporate leadership.In the words of Linda Chatman Thomsen (Director, Division of Enforcement, Securities and Exchange Commission) “Corporate character matters—and employees take their cues from the top.In the paper, Corporate Governance and Blockchains, which was recently made publicly available on SSRN, I explore the corporate governance implications of blockchain database technology.Blockchains have captured the attention of the financial world in 2015, and they offer a new way of creating, exchanging, and tracking the ownership of financial assets on a peer-to-peer basis.Major stock exchanges are exploring the use of blockchains to register equity issued by corporations.Blockchains can also hold debt securities and financial derivatives, which can be executed autonomously as “smart contracts.” These innovations have the potential to change corporate governance as much as any event since the 19 securities acts in the United States.