Our study analyzes a large sample of corporate insider transactions reported to the German supervisory authority BaFin in the period July 1, 2002 to April 30, 2005 using event study methodology. In particular, we focus on the question whether corporate insiders exploit inside information while trading in company’s stock. Our findings reveal that corporate insiders are able to identify profitable investment situations in their firms. E.g., they earn a profit of almost four percent in the 20 trading days after they purchased company’s stock. Furthermore, we find strong evidence that corporate insiders are engaged in the exploitation of inside information as they earn above average profits by front-running on corporate news. Finally, looking at the type of insider, we find that members of the supervisory board (directors) and the group of other insiders (basically family members of senior managers and directors) are the ones which trade in an unethical manner as they profit largely by exploiting inside information while front-running on corporate news. In contrast, members of the executive board (senior managers) can be exculpated from exploiting inside information as they realize below average returns with their rare front-running transactions.
Admittedly, our database might not be the ideal sample to study illegal insider trading.
This is because intentional and offensive trading on inside information is not very likely to be reported to the supervisory authority. Therefore, it is alarming that we find evidence that insiders exploit inside information in those transactions which they consider to be unproblematic and thus report. Surprisingly, until now, the regulatory authority has done very little to enforce the law and thus to assure that insiders do not trade on inside information. Our results, however, strongly suggest to watch trading records of corporate insiders more closely; especially those trades which are shortly
succeeded by an ad-hoc news announcement. Particularly, those insiders (e.g. the group of other insiders) who are not in the spotlight of the public or the financial press do not seem to fear the scrutiny of the regulator as they extensively trade on inside information. Therefore, the BaFin should intensify its monitoring activities as well as its ability to impose sanctions to ensure market transparency and integrity of the German capital market. Otherwise, a continuation of illegal insider trading could compromise the functionality of the German capital market. Nevertheless, we also see the ball in the court of the firms themselves. They have to protect their insiders from allegations, justified or unjustified, by establishing voluntary commitments like blackout periods or trading bans prior to specific corporate news announcements.
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I
Die Liste der hier aufgeführten Diskussionsbeiträge beginnt mit der Nummer 252 im Jahr 2003. Die Texte können direkt aus dem Internet bezogen werden. Sollte ein Interesse an früher erschienenen Diskussionsbeiträgen bestehen, kann die vollständige Liste im Internet eingesehen werden. Die Voll-texte der dort bis Nummer 144 aufgeführten Diskussionsbeiträge können nur direkt über die Autoren angefordert werden.
252. McKinnon, Ronald und Gunther Schnabl: The East Asian Dollar Standard, Fear of Float-ing, and Original Sin, Januar 2003.
253. Schulze, Niels und Dirk Baur: Coexceedances in Financial Markets – A Quantile Regres-sion Analysis of Contagion, Februar 2003.
254. Bayer, Stefan: Possibilities and Limitations of Economically Valuating Ecological Dam-ages, Februar 2003.
255. Stadler, Manfred: Innovation and Growth: The Role of Labor-Force Qualification, März 2003.
256. Licht, Georg und Manfred Stadler: Auswirkungen öffentlicher Forschungsförderung auf die private F&E-Tätigkeit: Eine mikroökonometrische Evaluation, März 2003.
257. Neubecker, Leslie und Manfred Stadler: Endogenous Merger Formation in Asymmetric Markets: A Reformulation, März 2003.
258. Neubecker, Leslie und Manfred Stadler: In Hunt for Size: Merger Formation in the Oil Industry, März 2003.
259. Niemann, Rainer: Wie schädlich ist die Mindestbesteuerung? Steuerparadoxa in der Ver-lustverrechung, April 2003.
260. nicht erschienen
261. Neubecker, Leslie: Does Cooperation in Manufacturing Foster Tacit Collusion?, Juni 2003.
262. Buchmüller, Patrik und Christian Macht: Wahlrechte von Banken und Aufsicht bei der Umsetzung von Basel II, Juni 2003.
263. McKinnon, Ronald und Gunther Schnabl: China: A Stabilizing or Deflationary Influence in East Asia? The Problem of Conflicted Virtue, Juni 2003.
264. Thaut, Michael: Die individuelle Vorteilhaftigkeit der privaten Rentenversicherung – Steu-ervorteile, Lebenserwartung und Stornorisiken, Juli 2003.
265. Köpke, Nikola und Jörg Baten: The Biological Standard of Living in Europe During the Last Two Millennia, September 2003.
266. Baur, Dirk, Saisana, Michaela und Niels Schulze: Modelling the Effects of Meteorologi-cal Variables on Ozone Concentration – A Quantile Regression Approach, September 2003.
267. Buchmüller, Patrik und Andreas Marte: Paradigmenwechsel der EU-Finanzpolitik? Der Stabilitätspakt auf dem Prüfstand, September 2003.
268. Baten, Jörg und Jacek Wallusch: Market Integration and Disintegration of Poland and Germany in the 18th Century, September 2003.
269. Schnabl, Gunther: De jure versus de facto Exchange Rate Stabilization in Central and East-ern Europe, Oktober 2003.
270. Bayer, Stefan: Ökosteuern: Versöhnung von Ökonomie und Ökologie?, Oktober 2003.
271. Köhler, Horst: Orientierungen für eine bessere Globalisierung, November 2003.
272. Lengsfeld, Stephan und Ulf Schiller: Transfer Pricing Based on Actual versus Standard Costs, November 2003.
273. Lengsfeld, Stephan und Thomas Vogt: Anreizwirkungen kostenbasierter Verrech-nunspreise bei externen Effekten –Istkosten– versus standardkostenbasierte
Verrechnungs-II
274. Eisele, Florian und Andreas Walter: Kurswertreaktionen auf die Ankündigung von Going Private-Transaktionen am deutschen Kapitalmarkt, Dezember 2003.
275. Rall, Wilhelm: Unternehmensstrategie für den globalen Wettbewerb, Februar 2004.
276. Niemann, Rainer: Entscheidungswirkungen von Verlustverrechnungsbeschränkungen bei der Steuerplanung grenzüberschreitender Investitionen, Februar 2004.
277. Kirchner, Armin: Verringerung von Arbeitslosigkeit durch Lockerung des Kündigungs-schutzes – Die entscheidende Einflussgröße, März 2004.
278. Kiesewetter, Dirk und Andreas Lachmund: Wirkungen einer Abgeltungssteuer auf Inves-titionsentscheidungen und Kapitalstruktur von Unternehmen, April 2004
279. Schanz, Sebastian: Die Auswirkungen alternativer Gewinnverwendung von Kapitalgesell-schaften im Rahmen des Halbeinkünfteverfahrens auf die Vermögenspositionen Residualan-spruchsberechtigter, Mai 2004.
280. Stadler, Manfred: Bildung, Innovationsdynamik und Produktivitätswachstum, Mai 2004.
281. Grupp, Hariolf und Manfred Stadler: Technological Progress and Market Growth. An Empirical Assessment Based on the Quality Ladder Approach, Mai 2004.
282. Güth, Werner und Manfred Stadler: Path Dependence without Denying Deliberation. An Exercise Model Connecting Rationality and Evolution, Mai 2004.
283. Duijm, Bernhard: Offener Regionalisums als pareto-verbessernde Integrationsform, Juni 2004.
284. Pitterle, Ingo und Dirk Steffen: Welfare Effects of Fiscal Policy under Alternative Ex-change Rate Regimes: The Role of the Scale Variable of Money Demand, Juni 2004.
285. Molzahn, Alexander: Optimale Fiskalpolitik und endogenes Wachstum, Juli 2004.
286. Jung, Robert, Kukuk, Martin und Roman Liesenfeld: Time Series of Count Data: Mod-elling and Estimation, August 2004.
287. De Grauwe, Paul und Gunther Schnabl: Nominal versus Real Convergence with Respect to EMU Accession. EMU Entry Scenarios for the New Member States, August 2004.
288. Kleinert, Jörn und Farid Toubal: A Structural Model of Exports versus Production Abroad, Dezember 2004.
289. Godart, Olivier und Farid Toubal: Cross the Border and Close the Gap? How do Migrants Enhance Trade, Januar 2005.
290. Schnabl, Gunther und Christian Danne: The Changing Role of the Yen/Dollar Exchange Rate for Japanese Monetary Policy, Februar 2005.
291. Schnabl, Gunther: Der Festkurs als merkantilistische Handelspolitik – Chinas Währungs- und Geldpolitik im Umfeld globaler Ungleichgewichte, Februar 2005.
292. Starbatty, Joachim: Anmerkungen zum Woher und Wohin der Europäischen Union, Feb-ruar 2005.
293. Wagner, Franz W.: Steuervereinfachung und Entscheidungsneutralität - konkurrierende oder komplementäre Leitbilder für Steuerreformen?, April 2005.
294. Yu, Peiyi und Werner Neus: Market Structure, Scale Efficiency, and Risk as Determinants of German Banking Profitability, Juni 2005.
295. Schüle, Tobias und Manfred Stadler: Signalling Effects of a Large Player in a Global Game of Creditor Coordination, Juni 2005.
296. Zaby, Alexandra: Losing the Lead: Patents and the Disclosure Requirement, August 2005.
297. Hager, Svenja und Rainer Schöbel: A Note on the Correlation Smile, Dezember 2005.
298. Starbatty, Joachim: Zum Zusammenhang von Politik, Ethik und Ökonomik bei Aristoteles, Dezember 2005.
299. Rostek, Stefan und Rainer Schöbel: Risk Preference Based Option Pricing in a Fractional Brownian Market, Januar 2006.
300. Hager, Svenja und Rainer Schöbel: Deriving the Dependence Structure of Portfolio Credit
III
301. Töpfer, Klaus: Offene Fragen und wissenschaftliche Herausforderungen der Entwicklungs- und Umweltpolitik, Februar 2006.
302. Stadler, Manfred: Education and Innovation as Twin-Engines of Growth, März 2006.
303. Schüle, Tobias: Forbearance Lending and Soft Budget Constraints in a Model of Multiple Heterogeneous Bank Financing, März 2006.
304. Buch, Claudia und Jörn Kleinert: Exchange Rates and FDI: Goods versus Capital Market Frictions, February 2006.
305. Felbermayr, Gabriel und Toubal Farid: Cultural Proximity and Trade, März 2006.
306. Schöbel, Rainer und Jochen Veith: An Overreaction Implementation of the Coherent Mar-ket Hypothesis and Option Pricing, April 2006.
307. Schüle, Tobias: Creditor Coordination with Social Learning and Endogenous Timing of Credit Decisions, November 2006.
308. Starbatty, Joachim: Sieben Jahre Währungsunion: Erwartungen und Realität, November 2006.
309. Dymke, Björn M. und Andreas Walter: Insider Trading in Germany – Do Corporate In-siders Exploit Inside Information?, Dezember 2006.