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| Author: | Maug, E. |
| Title: | Insider trading legislation and corporate governance |
| Journal: | European Economic Review
2002 : OCT, VOL. 46:9, p. 1569-1598 |
| Index terms: | CORPORATE GOVERNANCE TRADE REGULATIONS SHAREHOLDERS |
| Language: | eng |
| Abstract: | This paper analyzes the impact of insider trading legislation on corporate governance. In a context where large, dominant shareholders can monitor underperforming companies, managers have an incentive to give early warnings about adverse developments to dominant shareholders. This information is effectively a bribe to induce dominant shareholders to sell their stock and refrain from intervention. If insider trading is unregulated, dominant shareholders collude with management at the expense of small shareholders. The optimal regime forces the company to disclose all material information to the market. Private contracting between companies and shareholders leads to optimal insider trading regulation only if initial shareholders can enter a binding commitment. |
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