Investor protection, corporate governance and private information-based trading
Studies in Economics and Finance
ISSN: 1086-7376
Article publication date: 1 March 2021
Issue publication date: 27 July 2021
Abstract
Purpose
This study aims to examine the effects of investor protection (PROT), internal and external corporate governance (CG) on private information-based trading (PIBT).
Design/methodology/approach
This study uses a sample of 3,438 firms from 42 countries for the period 2002–2015 to examine the effects of the broad and specific measures of PROT, internal CG and external CG (product market competition and block ownership [BOWN]) on a more accurate measure of PIBT using regression analysis.
Findings
The results show that PROT and BOWN are effective in reducing PIBT. However, the specific measure of PROT (strength of PROT) is not significant in emerging markets and civil law countries. The internal CG is also significant but has a positive effect on PIBT.
Research limitations/implications
The results suggest that PROT law matters in the efforts to prevent PIBT. Policymakers and securities market regulators, particularly in emerging markets and civil law countries, should focus more on refining existing securities laws and enacting detailed securities rules that explicitly prevent specific market manipulation and PIBT.
Originality/value
This study provides evidence for the importance of specific and detailed securities rules in different market and legal environments. Furthermore, this study uses the segregated private information-based speculative trading component to accurately measure the PIBT.
Keywords
Acknowledgements
The authors thank the Ministry of Education of Malaysia for the financial support through the Fundamental Research Grant Scheme (FRGS/1/2017/SS01/USM/02/2). The authors are grateful to the Editor-in-Chief, Prof. Niklas F. Wagner, Associate Editor, Prof. Douglas J. Cumming and two anonymous reviewers for their valuable suggestions.
Citation
Lye, C.-T. and Hooy, C.-W. (2021), "Investor protection, corporate governance and private information-based trading", Studies in Economics and Finance, Vol. 38 No. 4, pp. 712-747. https://doi.org/10.1108/SEF-10-2019-0401
Publisher
:Emerald Publishing Limited
Copyright © 2021, Emerald Publishing Limited