Insider trading is one of the practices that (directly or indirectly) lead to a host of problems for example inaccurate stock market prices, high inflation, reduced public investor confidence, misrepresentation and non disclosure of material facts relating to securities and financial instruments. Again it reduces efficiency in the affected companies and eventually leads to economic underperformance. The researcher observed that the South African insider trading regulatory framework has some gaps and flaws which need to be adequately addressed to ensure efficient and stable financial markets. Therefore, the aim of this research is to provide a clear roadmap for an effective, efficient, adequate and internationally competitive insider trading regulatory framework in South Africa. In order to achieve the above stated aim, the historical development of the regulation insider trading is critically analyzed. The effectiveness and adequacy of the Insider Trading Act, 135 of 1998 is also discussed. Furthermore, the prohibition of insider trading under Securities Services Act, 36 of 2004 is explored and analyzed to investigate its adequacy. The role of the Financial Services Board, the Courts and the Directorate for Market Abuse is also scrutinized extensively. Moreover, a comparative analysis is undertaken of the regulation of insider trading in other jurisdictions of United States of America, Canada and Australia. This is done to investigate any lessons that can be learnt or adopted from these jurisdictions. The researcher strongly contends that having the best insider trading laws on paper alone will not cure the insider trading problem. What is required are adequate laws that are enforced effectively in South African courts. Therefore an adequate insider trading regulatory framework must be put in place to improve the efficiency of South African financial markets, to maintain a stable economy, combat misrepresentation and non disclosure of material facts in transactions relating to securities. The researcher has attempted to state the law as at 31 August 2007.

This thesis addresses two important issues necessary to understand whether insider trading should be prohibited: the effects of insider trading on stock prices and the compensation to insiders for providing information and other related services. This task is accomplished by analyzing stock price changes during corporate takeovers, before and after the regulatory changes in the 1980's that were designed to reduce the level of insider trading. In this thesis, we develop an indirect measure of insider trading that shows how observable stock price movements during takeovers allow one to make inferences about changes in insider trading after regulatory changes. Specifically, we show that when inside information is partially revealed to the market, the effects of regulatory changes on insider trading can be identified by examining the price movements of stocks around takeover announcements. If, however, information is not revealed at all or is fully revealed, it is impossible to identify the effects of regulatory changes on insider trading. We also develop a segmented diffusion model to analyze price movements characterized by cumulative abnormal returns during the period surrounding a takeover announcement. An econometric model is developed to estimate the segmented diffusion model. Naturally, this methodology applies to the study of various events in addition to corporate takeovers and regulatory changes. We conduct empirical analysis to test three hypotheses. With regard to Hypothesis I, we find strong evidence that the tightening of insider trading regulations in the 1980's was effective and that inside information was partially revealed to the market. With regard to Hypothesis II, we find evidence that insider trading regulations have more effect on negotiated takeovers than on takeovers initiated by bidding. With regard to Hypothesis III, we find weak evidence that insiders associated with acquiring firms seek fewer but more profitable takeovers after the introduction of tighter regulations. / Business, Sauder School of / Graduate

Stock options increasingly feature as part of CEO compensation, and there is evidence that CEOs of South African listed target companies engage in the practice of awarding themselves more options prior to takeover. This finding is consistent with CEO behaviour of foreign companies as explained by literature. After the recent financial crisis of 2008, there is a greater likelihood that financially stable companies might consider acquiring struggling companies with attractive potential future earnings. By gaining insight into the practices of stock option grants to CEOs, acquiring companies can ensure fair practice as well as not paying an undue premium for a target company. This study was conducted using a sample of 39 Johannesburg stock exchange (JSE) listed target companies, which were acquired during the period 2005- 2009. The focus was on the number of options awarded prior to the announcement date of the takeover in relation to subsequent options awarded. A median test, together with a Chi-squared test was used to evaluate the independence of option grants prior to acquisition and the actual acquisition transaction. Strong evidence was found that these two activities are not independent. Copyright / Dissertation (MBA)--University of Pretoria, 2010. / Gordon Institute of Business Science (GIBS) / unrestricted

Insider trading and earnings management (EM) have traditionally been associated with fraud and corporate scandals. Corporations involved in fraudulent financial reporting or earnings manipulations were assumed to have used insider trading patterns to manipulate earnings, thereby concealing information from investors. The purpose of this quantitative, non-experimental study was to examine the association between insider trading patterns and EM citations among a randomly selected sample of publicly traded companies. The research question pertained to the association between the number of EM citations and whether a firm exhibited patterns of insider trading among publicly traded firms. The theoretical framework was based on accounting, auditing and financial theories. Archival data were collected in the form of financial statements from annual reports of 77 companies submitted to the Securities and Exchange Commission. A multiple linear regression was used to answer the research question to determine whether there was an association between insider trading patterns and EM. Results of descriptive statistics and regression analysis revealed that, after controlling for the firm size, a significant association existed between the number of EM citations and patterns of insider trading in the sample of publicly traded firms. A positive relationship, wherein firms with patterns of insider trading had more EM citations as indicated from the regression results. These findings may encourage investors, regulators, auditors, the public, and other interested parties to work with researchers to foster confidence in financial markets and the accounting profession, and to redeem the mistakes made by companies in the past.

This study examines board meetings’ role in reducing the information gap between managers and independent directors. Using abnormal returns to insider trades as a proxy for insiders’ information level, I find no association between board meetings and the manager-director information gap for the pre-2003 period. However, in the post-2003 period, board meetings significantly increase directors’ information level relative to that of managers. I next identify that board meetings’ informational role is driven by the 2003 NASDAQ and NYSE board independence requirements. Further analyses support a causal link between board meetings and the smaller manager-director information gap post-2003. Furthermore, board meetings’ information role is more pronounced for directors who are relatively new to the firm, diverse directors, directors with outside connections, and directors sitting on certain committees. Lastly, using a subsample of firms that voluntarily disclose disaggregated information on board meetings, I find that the form of board meetings also matters: in-person board meetings reduce the manager-director information gap, while remote board meetings do not. Overall, board meetings’ informational efficacy depends on mandatory board independence, independent directors’ characteristics, and board meetings’ organizational forms.

In 1995 Congress passed the Private Securities Litigation Reform Act to address several perceived abuses in securities fraud class actions. In the aftermath of Enron, WorldCom, and other high profile securities litigation, critics suggest that the law made it easier for firms to escape securities fraud liability and thus created a climate conducive to fraud. Proponents maintain that the PSLRA has deterred the filing of nonmeritorious cases. This article explores whether the PSLRA achieved Congress's twin goals of "curb[ing] frivolous, lawyer-driven litigation, while preserving investors' ability to recover meritorious claims." The empirical evidence suggests that, in many respects, the PSLRA did achieve several of Congress' goals. There has been a reduction in the number of securities class actions filed. The PSLRA has improved overall case quality, particularly in the circuit with most stringent interpretation of the heightened pleading standard. In general, Congress seems to have achieved its goal of reducing the race to the court by increasing the filing delay in securities class actions. However, a stricter interpretation of the pleading standard does not affect this. The PSLRA does little to reduce the incidence of litigation for high technology issuers, but the evidence suggests that the litigation risk has substantially decreased for these issuers. Overall, the monitoring of attorney's effort increased, but institutional investors are no better at monitoring than other lead plaintiffs. The findings also suggest that lead plaintiffs forcing plaintiff's attorneys to compete for designation as lead counsel has resulted in lower attorney's fees. The observed effect is greater when the lead plaintiff is an institutional investor.

This paper examines the impact of reduced insider trading enforcement on the stock market using a unique and plausibly exogenous U.S. court ruling that undermines the SEC’s ability to prosecute insider trading defendants in court. Contrary to the conventional view, the study finds that the court ruling has positive effects on liquidity and stock price, consistent with the idea that stock prices become more informative when insider trading enforcement is reduced. The effects are less positive for firms with high ex-ante stock price informativeness, as the benefits of reduced insider trading enforcement are smaller for these firms. However, liquidity deteriorates in pre-earnings announcement periods after the court ruling, as investors anticipate forthcoming information and delay their trades until the announcement, due to heightened risks associated with trading against those with private information. In sum, this paper shows that the effect of reduced insider trading enforcement on liquidity and stock price could be positive overall. This study holds implications for the SEC, which aims to regulate insider trading for a fair market while also considering liquidity to maintain an efficient market.

Yes / Purpose – The purpose of this paper is to investigate the impact of insider trading on subsequent stock returns in the UK, with a specific focus on the impact of the global financial crisis of 2007-2008 on the relation between CEO and CFO stock purchases and returns. Design/methodology/approach – The empirical analysis uses 10,230 purchases executed in 679 UK firms by 1,477 directors during the period from 2000 to 2010. Subsequent market-adjusted stock returns are regressed on a set of firm-specific accounting, market and corporate governance variables as well as the characteristics of CEOs and CFOs. Additionally, the analysis distinguishes between the opportunistic and routine trades. Findings – The findings reveal that the position of the trading director and the nature of their trades are important in determining the impact on returns of insider trades. In particular, CEO purchases are on the whole more informative than CFO purchases and opportunistic purchases. The trades in the post-crisis period have a greater impact on subsequent stock returns. Research limitations/implications – The empirical analysis is limited to the trades made by two executives. Future research should consider inside trades by all directors and distinguish between executive and non-executive directors. Also, a behavioral measure should be developed to test if the financial crisis affected the trading behavior of directors and whether directors use insider trading strategically to signal information to the market. Practical implications – The impact of directors’ dealings on stock returns is not homogeneous. Financial analysts and investors should pay more attention to different types of trades and the identity of trading director. Originality/value – This paper, to the authors’ knowledge, provides the first attempt that combines in the same framework the identity and personal attributes of trading executive directors, firm-level corporate governance features, the nature of purchase transactions and the trading period characteristics. Furthermore the empirical analysis is carried out during a period that also covers the recent global financial crisis period and its immediate aftermath.

I study how the decisions of corporate individuals, firm culture, corporate behavior, and the broader financial markets are interconnected. In the first chapter, I examine insider trade reporting violations by corporate insiders, such as executives, officers, and directors, who have access to nonpublic information. The Sarbanes-Oxley Act of 2002 (SOX) mandates prompt insider trade reporting within two business days to reduce information asymmetry. However, frequent violations of this deadline breach securities law and may indicate a broader culture of noncompliance. I investigate whether insiders’ adherence to or disregard for filing deadlines reflects the firm’s stance on unethical behavior and its fiduciary duty to shareholders. Using a dataset of 18,567 firm-year observations post-SOX, I find a significant positive association between insider filing violations and future corporate misconduct, especially in firms without a Chief Compliance Officer (CCO). This suggests that strong internal regulatory systems are crucial for promoting a culture of compliance. In the second chapter, I explore the link between incoming CEO incentives and real earnings management (REM), which involves purposeful deviations from normal business operations to meet specific earnings targets. New CEOs face significant scrutiny from shareholders, boards, and the market, which may pressure them to manage earnings. I find a negative association between CEO risk-taking incentives (vega) and REM and a positive association between CEO stock price sensitivity (delta) and REM when the firm is in financial distress. These findings suggest that CEO incentives are closely related to REM. In the third chapter, using hand-collected data, I explore the labor market response to executives’ off-the-job personal misconduct, such as sexual misadventure, substance abuse, violence, and dishonesty. I observe that executives with a record of indiscretion are 12% more likely to switch firms, 11% more likely to lose board seats, and 10% more likely to experience a lower rank the next year. Furthermore, they are 34.5% to 37.3% more likely to join firms with low integrity culture scores. This research highlights the career repercussions of personal indiscretions for executives.

本文所稱之「先購後併」乃係指併購公司或公開收購公司於併購或公開收購消息公開前，於市場上先行購買目標公司之股份提前佈局的行為，亦有以「立足點持股」或「預先持股」稱之。於先購後併之情況下，是否併購方有構成內線交易之疑慮，因我國無論證券交易法或企業併購法對此議題皆無明確規定，故素來即存在爭議，實務上亦不乏收購人因建立投資部位而招致內線交易訴訟之案例存在。 本文試以我國內線交易法規範之根源—美國法作為比較法，分析先購後併的情況下，是否併購人或公開收購人本身為內線交易之主體，以及併購人或公開收購人是否得與他人一同建立投資部位，再加入104年7⽉月8⽇公布之企業併購法第27條第10項⾄至第15項關於併購前建立投資部位之最新修訂說明，以及實務案例研析，並於文後嘗試提出本文見解。