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| Author: | Khanna, N. Slezak, S. Bradley, M. |
| Title: | Insider trading, outside search, and resource allocation: why firms and society may disagree on insider trading restrictions |
| Journal: | Review of Financial Studies
1994 : FALL, VOL. 7:3, p. 575-608 |
| Index terms: | RESOURCE ALLOCATION TRADE ECONOMICS |
| Language: | eng |
| Abstract: | The authors show that entrepreneurs may prefer to allow insider trading even when it is not socially optimal. They examine a model in which an insider/manager allocates resources on the basis of his private information and outside information conveyed through the secondary-market price of the firm's shares. If the manager is allowed to trade, he will compete with informed outsiders, reducing the equilibrium quality of outside information. Entrepreneurs and society may disagree on the conditions under which insider trading restrictions should be imposed. |
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