Illegal insider trading and corporate governance

Ajit Dayanandan, Han Donker and Mike Ivanof

International Journal of Corporate Governance, 2014, vol. 5, issue 1/2, 1-21

Abstract: This empirical study examines the role of corporate boards, ownership structure, and executive pay on illegal insider trading in the Netherlands. We use a unique dataset received from the prosecutor of financial crime in the Netherlands. The results of our study show that monitoring of large institutional shareholders and other blockholders, as well as board independency and board size reduce illegal insider trading. The study also confirms the entrenchment hypothesis that managerial shareholdings between 5-25% and executive compensation in the form of stock options positively impact illegal insider trading. Our paper validates some of the moral hazard problems associated with stock compensation schemes in corporate episodes in the 1990s and during the financial crisis in 2008, and points to the policy choices in framing new regulations in the corporate and financial landscape.

Keywords: illegal trading; insider trading; corporate governance; executive compensation; asymmetric information; corporate boards; ownership structure; executive pay; The Netherlands; shareholder monitoring; large institutional shareholders; blockholders; board independence; board size; stock options; moral hazard; stock compensation. (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (1)

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