Should Insider Trading be Prohibited when Share Repurchases are Allowed?

Andrea M. Buffa and Giovanna Nicodano

No 16, Carlo Alberto Notebooks from Collegio Carlo Alberto

Abstract: This paper considers share repurchases as the way long-term shareholders preserve their ability to use corporate information for speculative purposes when insider trading regulation is enforced. This use of corporate information increases the adverse selection losses of short-term shareholders. Thus, buy-back programs reduce their incentive to invest in stocks that back the most productive technology, leading to a socially inefficient equilibrium. It follows that insider trading should not be banned when share repurchases are allowed.

Keywords: insider trading; share repurchase; liquidity; securities regulation; corporate information (search for similar items in EconPapers)
JEL-codes: D82 G14 G18 K22 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2006
New Economics Papers: this item is included in nep-fin, nep-fmk, nep-law and nep-reg
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Journal Article: Should Insider Trading be Prohibited when Share Repurchases are Allowed? (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:cca:wpaper:16

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