Premium
Insider Trading: Does Being a Neighbor of the Securities and Exchange Commission Matter?
Author(s) -
Hu Xuesong,
Wang Xin,
Xin Baohua
Publication year - 2017
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.2749
Subject(s) - commission , insider trading , earnings , business , sanctions , profitability index , insider , accounting , investment banking , monetary economics , financial system , finance , economics , law , political science
Using a perception‐based crime deterrence approach, we present evidence that corporate insiders located closer to the Securities and Exchange Commission regional offices trade less frequently on their own company's stocks, while they earn higher abnormal returns from such insider transactions. These results are robust to several additional tests. Our further analysis indicates that such differences in trading profitability are mitigated during the periods of a high level of legal jeopardy such as the periods around earnings announcements and mergers and acquisitions. These findings are consistent with the view that Securities and Exchange Commission oversight has an impact on insiders' trading behavior by influencing their perceptions of sanctions risk. Copyright © 2015 John Wiley & Sons, Ltd.