264. Laura N. Beny, A Comparative Empirical Investigation of Agency and Market Theories of Insider Trading, 9/99; subsequently published as "Do Insider Trading Laws Matter? Some Preliminary Comparative Evidence" in American Law and Economics Review (Symposium on Comparative Law and Economics, Andrei Shleifer, ed.), Vol. 7, No. 1, Spring 2005, 144-183; and, in part, as "Insider Trading Laws and Stock Markets Around the World: An Empirical Contribution to the Theoretical Law and Economics Debate" in Journal of Corporation Law, Winter 2007.
Abstract: This paper explores the empirical relationship among insider trading law, other legal rules and institutions, and equity markets in an international context. In particular, using legal and economic data from a cross-section of countries, I investigate two empirical relationships: the relationship between insider trading law and ownership concentration and the relationship between insider trading law and equity market liquidity. Consistent with agency theories which predict that the ability of insiders to engage in uninhibited trading encourages concentrated share ownership, I find that tougher insider trading laws are negatively and significantly related to the degree of ownership concentration in publicly traded companies. That is, in economic regimes where insider trading is more stringently regulated, large shareholders hold a significantly lower fraction of outstanding shares. In addition, consistent with market microstructure theories of the relationship between asymmetric information and trading costs, I find that weaker insider trading regimes have, on average, less liquid equity markets. It is hoped that the findings of this paper will inform the ongoing law and economics debate over the desirability of regulating trading by corporate insiders.