Corporate governance and insider trading regulation efficiency

Abstract

This paper aims to measure insider trading probability and the corresponding regulation efficiency in China. Based on an identification of influencing factors of corporate governance, the author explores the relationship among insider trading, corporate governance, and corporate value. The author also uses, based on high-frequency financial data, the probability of insider trading to measure the degree of insider trading in China's security market. Results reveal that China's security market has failed to punish and prohibit illegal insider trading effectively. However, the security market does exert certain constraints on insider-trading-ridden listed companies. The conclusion of this article is that by improving corporate governance, we can enhance the efficiency of insider trading regulation. Practical implications are also discussed. © 2010 Higher Education Press and Springer-Verlag Berlin Heidelberg.