Law and Economic Literature :: Economic Environment, Trading Regulations

Law and economic literature on insider handicraft can be categorized into both categories- agency theories and market theories of insider job. Agency theories of insider vocation deal with the impact of insider trading on firm-level efficiency and corporate value (Jensen and Meckling, 1976). On other hand, food market theories of insider trading analyze the implication of insider trading on market execution (Bhattacharya and Daouk, 2000) e.g. the cost of capital, liquidity and market efficacy etc., for example, Manna (1966) suggests that the insider trading allows rip markets to be more efficiency. Surprisingly, most of the debates on insider trading ar backbreaking on U.S markets (Beny, 2005).La Porta et al (1998) claim that law and its level of enforcement substitute according to countries infrastructures, and differences in law and its enforcement may explain variations in market structures and parenthood market practices among different countries. Moreover, Maug (200 2) presents a mathematical model in which a dominate owner has information advantage over scummy shareholders where insider trading regulations are not properly enforced. Besides, Leland (1992) argues that if the insider trading is allowed, stock prices recoil better information at the cost of less liquidity that order depends on economic environment. Baiman and Verrecchia (1996) argue that the level of insider trading varies with level of pecuniary disclosure, the culture, and the economics of different countries. Therefore, it can be expected that the impact of insider trading activities on the stock market varies country to country. Bhattacharya and Daouk (2002) address the core group of insider trading regulation and its enforcement on the cost of capital by taking 51 countries over more than 20 years, and they summaries that insider trading regulation and its enforcement of different countries protagonist in reducing the cost of capital of firms. Even though, the magnitu de of effect varies with the level of enforcement of a country. Moreover, Beny (2005) does an attempt to find whether insider trading law take on Ownership dispersion, stock price informativeness and stock liquidity. In experiential results, he finds that Ownership dispersion, stock price informativeness and stock liquidity are greater where insider trading law and its enforcement are more restricted. Moreover, the most big aspect of the formal law is penalties or criminal sanctions that are enforce on who violates insider trading law. Fernandes and Ferreira (2009) argue that insider trading regulation and its enforcement improve the informativeness of stock prices, but this improvement is concentrated in developed markets.