The John M. Olin Center

Paper Abstract

743. Jesse M. Fried, Insider Trading Via the Corporation, 05/2013.


Abstract: When a U.S. firm trades its own shares in the open market, it is subject to much less stringent trade-disclosure rules than an insider of the firm trading in those shares. Insiders owning equity in their firm thus frequently engage in indirect insider trading: having the firm buy and sell its own stock at favorable prices. Such indirect insider trading imposes substantial costs on public investors in two ways: by systematically diverting value to insiders and by causing insiders to take steps that destroy economic value. To reduce these costs, I put forward a simple proposal: subject firms to the same trade-disclosure rules imposed on their insiders.



 

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