Insider Trading and Corporate Governance in Latin America

Juan Cruces and Enrique Kawamura

No 3206, Research Department Publications from Inter-American Development Bank, Research Department

Abstract: Unlike outside investors, controlling groups have the option to trade on inside information and can exercise it at the expense of outside investors. This paper computes informed trading probabilities (ITPs) for the universe of liquid stocks from seven Latin American countries, trading both at home and as ADRs, and applies ITPs in order to address corporate governance questions. Substantial heterogeneity of ITP is found within a given institutional environment. Nonetheless, significant differences in mean ITP are identified across volume ranges, countries, and security types. ITP has an intuitively appealing correlation with some (but not all) of the country-wide investor protection variables used in the literature. Substantial increases in ITP are found just before public corporate announcements, suggesting that privately-informed agents are exploiting their privilege when it is most valuable. ITP is priced in the market: companies with higher ITPs fetch lower Tobin’s qs. It is concluded that Informed Trading Probability proxies for unobservable corporate governance quality as the heterogeneity of firm behavior seems to be recognized by the market and priced accordingly.

Date: 2005-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.iadb.org/research/pub_hits.cfm?pub_id=R ... le_name=pubR-513.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.iadb.org/research/pub_hits.cfm?pub_id=R-513&pub_file_name=pubR-513.pdf [301 Moved Permanently]--> https://www.iadb.org/research/pub_hits.cfm?pub_id=R-513&pub_file_name=pubR-513.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:idb:wpaper:3206

Access Statistics for this paper

More papers in Research Department Publications from Inter-American Development Bank, Research Department Contact information at EDIRC.
Bibliographic data for series maintained by Felipe Herrera Library ().