The Deterrent Effect of Whistleblowing on Insider Trading

Jacob Raleigh

Journal of Financial and Quantitative Analysis, 2024, vol. 59, issue 8, 3739-3769

Abstract: I study whether the Dodd–Frank whistleblower program reduced informed trading by corporate insiders. To identify the effect, I partition firms based on the extent to which this program affected the likelihood of whistleblowing at each firm. I find a relative reduction in trading profits on purchases made by insiders at more affected firms after the program was initiated. I analyze insider sales in settings where they are more likely to be informed and find a reduction in the number of sales before negatively perceived events. The results suggest that whistleblower protections and rewards can effectively deter insider trading.

Date: 2024
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