| Abstract |
This paper examines the in?uence of corporate governance systems on insiders' ability to pro?t from their information advantage and the ways through which corporate governance systems in?uence such ability. We ?nd that corporate governance signi?cantly reduces the pro?tability of insider sales but not that of insider purchases. Given that sales involve greater legal risk than purchases, the results suggest that well-governed ?rms restrict informed insider trading mainly to reduce legal risk. We also ?nd that better-governed ?rms reduce the pro?tability of insider sales by increasing the likelihood of adopting ex-ante preventive measures (e.g., voluntary in-sider trading restriction policies), implementing such measures more effectively, and taking ex-post disciplinary actions more actively. These results highlight how better-governed ?rms are able to restrict insiders from exploiting private information. |