Article

Does institutional monitoring matter? Evidence from insider trading by information risk level

Published in: Investment Analysts Journal
Volume 47, issue 1, 2018, pages: 48–64
DOI: 10.1080/10293523.2017.1413152
Author(s): Chune Young ChungSchool of Business Administration, Republic of Korea, Sanggyu KangSchool of Business Administration, Republic of Korea, Doojin RyuDepartment of Economics, Republic of Korea

Abstract

We examine the effects of institutional ownership on insider exploitation of asymmetric information. Because institutional investors monitor firm activities in order to improve the corporate information environment, such monitoring could decrease the intensity of insider trading on private information. We find that large, long-term institutional ownership is negatively and significantly related to the extent of insider trading associated with information risk. This suggests that institutional monitoring mitigates information asymmetry among investors, resulting in lower information risk, thus restricting informed insider trading.

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