Research On The Insider Trading And Corporate Disclosure

With the promulgate of the new “Securities Law” and new “Company Law”, insidertrading phenomenon has begun to appear in China’s capital market. Then the regulatoryauthorities develop a series of laws and regulations to regulate the insider trading. However, theillegal trading behaviors occur frequently. And because of the insiders’ superior status on firm’sinformation, the insider trading becomes a controversial issue in the market. The focus of thecontroversy is whether the insiders make their transaction decisions based on their superiorinformation, and whether these transactions can gain abnormal returns. This paper tries to discussthese questions.The insider trading in this paper only refers to the directors, supervisors and senior managersbuy or sell their own firms’ stocks on the market, we don’t consider the transactions of the majorshareholders. The insider trading made by listed companies in Shanghai Stock Exchange in2009-2010are selected as research sample to describe the status quo of insider trading in China’scapital market, and to make simple statistical analysis about the illegal insider trading. We findthat the phenomenon of illegal trading is serious, but related punitive measures are not in place.Then, correlation analysis and regression analysis are performed in the examination of therelationship between insider trading size and the change of quarterly finance performance. Thefindings indicate that the insiders make their transaction decisions based on their superiorinformation indeed. After that, we use event study methodology to exam the abnormal returns ofinsider trading, the findings show that insiders have excellent ability to handle the time of tradingwhen they sell their own firms’ stocks, and can gain short-term abnormal returns significantly.But they have no ability to handle the time of trading when they buy stocks.The conclusions of this paper give evidence of insiders use superior information to carry outtransactions, and exam the abnormal returns of these transactions. These findings are useful forregulatory agencies to regular the insider trading.