Insider Trading: Does Being a Neighbor of the SEC Matter?

Managerial and Decision Economics (2017) 38:144-165

46 Pages Posted: 16 Feb 2018

See all articles by Xuesong Hu

Xuesong Hu

University of Oregon - Department of Accounting

Xin Wang

The University of Hong Kong

Baohua Xin

University of Toronto - Rotman School of Management

Date Written: February 5, 2015

Abstract

Using a perception-based crime deterrence approach, we present evidence that corporate insiders located closer to the Securities and Exchange Commission (SEC) regional offices trade less frequently on their own company's stocks, while 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 SEC oversight has an impact on insiders’ trading behavior by influencing their perceptions of sanctions risk.

Keywords: Insider Trading; Securities and Exchange Commission Enforcement; Deterrence

JEL Classification: K22; K42; G14

Suggested Citation

Hu, Xuesong and Wang, Xin and Xin, Baohua, Insider Trading: Does Being a Neighbor of the SEC Matter? (February 5, 2015). Managerial and Decision Economics (2017) 38:144-165, Available at SSRN: https://ssrn.com/abstract=3118653

Xuesong Hu

University of Oregon - Department of Accounting ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States

Xin Wang

The University of Hong Kong ( email )

1215 K.K.Leung Building
Hong Kong
Hong Kong

Baohua Xin (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

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