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Finance - Dissertation Example

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Finance

These sorts of scandals caused several studies in which scholars and financial analyst tried to identify the content of information that the directors usually possess through which the directors were able to generate higher profits in the stock market. This paper clarifies whether directors outperform their business markets whenever they trade, when they buy, or when they sell. The research paper also establishes the characteristics in transaction level, the firm level, or the director-level, which determine the directors’ trade profitability. Based on the same, hardly any existing studies provide adequate empirical evidence of percentage gain by directors generated by directors in their process of purchasing or selling company shares. The paper also provides that directors are better selling off shares, through insider trading, rather than purchasing them at comparatively lower prices. For testing, data was extracted from the New York Stock and NASDAQ of fifty randomly selected companies. The insider trading information of these companies for the financial period January 1, 2009 until June 30, 2012 was analyzed. The testing has proved the hypothesis that directors are able to generate abnormal profit through the insider trading sale transactions. 1.0 Introduction In the world of economics and finance, when it comes to financial malpractices, insider trading tops the list. Insider trading is one of the most notorious financial crimes being practiced by managers, directors and other employees all around the globe. An individual who has direct and reliable access to the non-public information about the security can define insider trading as the buying and selling of a security. Insider trading is not always considered as a malpractice or illegal and is subjective to the underlying intention to the transaction. The statement can be further elaborated by considering the fact that if the trader is reaping profits on the basis of such information which is not being public yet, then the insider trading transaction is illegal. In addition, insider trading does not always mean that buying and selling of security is taking place. Providing confidential information to a third party, in exchange of monetary or any other form of consideration, is also illegal. The practice of insider trading is not confined to Directors of any corporation but the practice also prevails among brokers and even the family members of the directors. Although, once the information is public, the inside transaction is not illegal as the parties involved does not derive any unfair advantage over the general public. Media has made the masses at general knowledgeable with the passage of time and they have also equipped themselves with the technicalities of insider trading especially after the cases of Enron and Martha Stewart. The Securities and Exchange Commission of USA has adopted the practice of enforcing strict and practical guidelines which distinguishes legal and illegal trading of the shares by the inside people. Insider trading is not a recent or a latest money making gimmick which has been exploited by the directors and managers to earn higher return. The history of insider trading dates back to the great depression as well. The securities and exchange commission of the United State ...Show more

Summary

Contents Contents 2 Abstract 3 1.0Introduction 4 2.0Literature Review 8 3.0Methodology 15 Table2: Abnormal Gain on purchase transactions 24 Abstract Insider trading has always been in question among the regulatory bodies all across the globe. Although anybody from inside the corporations can commit insider trading, however directors have always remained the pioneer of doing so…
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Finance essay example
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