Insider Trading: Does Being a Neighbor of the Securities and Exchange Commission Matter?

Xuesong Hu, Xin Wang and Baohua Xin

Managerial and Decision Economics, 2017, vol. 38, issue 2, 144-165

Abstract: Using a perception‐based crime deterrence approach, we present evidence that corporate insiders located closer to the Securities and Exchange Commission regional offices trade less frequently on their own company's stocks, while they earn higher abnormal returns from such insider transactions. These results are robust to several additional tests. Our further analysis indicates that such differences in trading profitability are mitigated during the periods of a high level of legal jeopardy such as the periods around earnings announcements and mergers and acquisitions. These findings are consistent with the view that Securities and Exchange Commission oversight has an impact on insiders' trading behavior by influencing their perceptions of sanctions risk. Copyright © 2015 John Wiley & Sons, Ltd.

Date: 2017
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