Law and economic literature on insider trading can be categorized into two categories- agency theories and market theories of insider trading. Agency theories of insider trading deal with the impact of insider trading on firm-level efficiency and corporate value (Jensen and Meckling, 1976). On other hand, Market theories of insider trading analyze the implication of insider trading on market performance (Bhattacharya and Daouk, 2000) e.g. the cost of capital, liquidity and market efficacy etc., for example, Manna (1966) suggests that the insider trading allows stock markets to be more efficiency. Surprisingly, most of the debates on insider trading are concentrated on U.S markets (Beny, 2005).La Porta et al (1998) claim that law and its level of enforcement vary according to countries’ infrastructures, and differences in law and its enforcement may explain variations in market structures and stock market practices among different countries. Moreover, Maug (2002) presents a mathematical model in which a dominate owner has information advantage over small shareholders where insider trading regulations are not properly enforced. Besides, Leland (1992) argues that if the insider trading is allowed, stock prices reflect better information at the cost of less liquidity that magnitude depends on economic environment.
Baiman and Verrecchia (1996) argue that the level of insider trading varies with level of financial disclosure, the culture, and the economics of different countries. Therefore, it can be expected that the impact of insider trading activities on the stock market varies country to country. Bhattacharya and Daouk (2002) address the effect of insider trading regulation and its enforcement on the cost of capital by taking 51 countries over more than 20 years, and they summaries that insider trading regulation and its enforcement of different countries help in reducing the cost of capital of firms. Even though, the magnitude of effect varies with the level of enforcement of a country. Moreover, Beny (2005) does an attempt to find whether insider trading law matter on Ownership dispersion, stock price informativeness and stock liquidity. In empirical results, he finds that Ownership dispersion, stock price informativeness and stock liquidity are greater where insider trading law and its enforcement are more restricted. Moreover, the most important aspect of the formal law is penalties or criminal sanctions that are imposed on who violates insider trading law.
Fernandes and Ferreira (2009) argue that insider trading regulation and its enforcement improve the informativeness of stock prices, but this improvement is concentrated in developed markets.
Common Law vs. Political Law vs. Scientific Law Americans are no longer aware that there are two kinds of legal systems, political and scientific. America was founded on principles of scientific law. But these principles have now been submerged in today's legal system. What is taught today as law is political law. To understand the difference between a scientific legal system and a political one, it is necessary to know that scientific law developed in the absence of any legislature or Congress or Parliament whatever.
The first way the public is affected is through an increase in the wealth gap. Those who are placed high on position of a popular company only get richer with insider trading. It is unfair because the public are missing out on the opportunity to reap the same benefits simply because they do not have the same access. The second way is that the confidence of investors is heavily diminished through insider trading. If a handful of investors are successful in the stock market because of the information they obtain, it leaves space for foul play to be assumed. Other investors in the market can accuse the whole thing of not being fair, and that is exactly what the Government is trying to avoid with the laws they have passed to restrict the unfairness in the stock
In John Torpey’s article “Coming and Going: On the State Monopolization of legitimate Means of Movement” he points out that through the use of documents such as international passports, internal passports, and identifications card such as driver licenses, the state control movements. By constructing rules and regulations the states are able to monitor and regulate who come can come in and who can’t. However, Sadiq in his article addresses illegal immigrants in a way that Torpey, failed to mention in his article. Sadiq in in his article, “Documentary Citizenship” brings forth an argument that focuses on illegal immigrants and their visibility within a nation-state. Being illegal one does not have any legal documents which means, they are invisible to the state. Though, illegal immigrants can buy identification documents in the black market that can give them social, political, or economical rights that will give them visibility within the state. I agree with Sadiq, that in order to fit in and to have rights in society you need some sort of
There are many instances of insider trading that have taken place in the U.S. stock exchange. The Federal Reserve and The Federal Government have clearly stated that insider trading undermines the law and is illegal, but individuals insider trade anyway.
Over the years, different jurisdictions had built their specific system of rules of conduct to govern behaviour. These legal systems, influenced by historical and cultural roots, can be distinguished in two families, the Civil law and the Common law legal systems. The distinctions lies in the process in which each decision is make by the judge and on the legal sources that shapes the law. Indeed, by contrast to the Common law system, which is largely based on Precedents, meaning the decisions that have already been made by judges in similar cases, the Civil law system is based on legislator’s decisions and legal codes with which judges have to justify their judgment . Consequently, instead of referencing to concepts and rules
This case study is not about Ms. Stewart direct participation with illegal insider trading as the media had steered the public to believe. To begin, Ms. Stewart received a phone call from Ann Armstrong, her assistant, stating that Peter Bacanovic, her stockbroker, “thinks ImClone is going to start trading down.” (Arnold, Beauchamp, Bowie, 2013, p. 390) Although Ms. Stewart was not able to get a hold of Peter, she talked to his assistance, Douglas Faneuil,
Insider trading has been a commonly discussed topic since Martha Stewart was accused, tried, convicted, and served a prison term for her involvement with the Inclon trading scandal. However, the definition of the term “insider trading” is not necessarily always connected with illegal activity. As a matter of fact, in some jurisdictions, “insider trading is no crime. Traditionally, it has been an expected, and perfectly acceptable prerequisite of certain sorts of employment.”(Insider Trading). But since the latter part of the 1960’s, stricter enforcement of insider trading practices have been put into place because of financial scandals.
Author provides some numbers, for the reader to find out about the situation in other companies. This article is totally related to the business, because it deals with the information, useful for the businessmen for decision making. The overview of the economical situation in the stock market is very useful for those people, whose businesses are closely connected to investments and gambling. Business can be strongly affected by the article, because the fed company can lose its potential investors and the gamblers can have a chance to avoid unnecessary loss. As a result the other companies can get more investors, and the investors more profit, but only in case, the author’s predictions are true. So, the article can generally decrease the number of gamblers involved into stock market in the nearest future.
A generation ago, it was generally believed that security markets were efficient in adjusting information about individual stocks and stock market as a whole (Malkiel, (2003)). However, we cannot deny the efficient market hypothesis has several paradoxes.
As a consequence of the separate legal entity and limited liability doctrines within the UK’s unitary based system, company law had to develop responses to the ‘agency costs’ that arose. The central response is directors’ duties; these are owed by the directors to the company and operate as a counterbalance to the vast scope of powers given to the board. The benefit of the unitary board system is reflected in the efficiency gains it brings, however the disadvantage is clear, the directors may act to further their own interests to the detriment of the company. It is evident within executive remuneration that directors are placed in a stark conflict of interest position in that they may disproportionately reward themselves. The counterbalance to this concern is S175 Companies Act 2006 (CA 2006) this acts to prevent certain conflicts arising and punishes directors who find themselves in this position. Furthermore, there are specific provisions within the CA 2006 that empower third parties such as shareholders to influence directors’ remuneration.
i. The economy is said to be ‘booming’ when demands for certain products and services rise. When demand rises, the prices will also increase. Increase in price can boost up the company’s profit. This enables companies to hire more workers thus increasing the numbers of employments. The increase in company’s profit also allows employers to raise the employees’ wages. When companies have more workers, they would be able to produce more products. Overtime, these outputs will then be sold to the people with jobs at a higher price because of the scarce amount of resources available.
Finally, strong form tests of market efficiency are tests of whether the information set consists of all information available to any market participant is fully reflected in asset prices and whether any type of investor can make an excess profit (Elton and Gruber, 1995). In such strong form tests of the efficient market hypothesis no one can earn excess profits. Indeed, in reality laws prohibit trading using insider information.Groups normally tested are corporate insiders, stock exchange specialists, security analysts and professional asset managers.
Substantive and Procedural Law – Substantive laws are the social rights and duties of people, and procedural law are guidelines through which government bodies or courts deal with breaches in substantive law. E.g. substantive law would state that hitting someone with a car and driving off is a crime, while procedural law would define how the courts could try and sentence in the case.
Law is a tool in society as it helps to maintain social control, promoting social justice. The way law functions in society and its social institution provide a mechanism for solutions. There are many different theories of the function of law in relation to society in considering the insight they bring to different socio-legal and criminological problems. In the discussion of law’s role in social theory, Leon Petrażycki and Eugen Ehrlich share similar beliefs in the jurisprudence of society. They focused their work on the experience of individuals in establishing meaning in their legal relations with others based on the question of what it means to be a participant in law. Jürgen Habermas presents a relationship between law and morality. From a certain standpoint, law is a key steering mechanism in society as it plays an educational role in promoting conducts, a mean of communication and it
Legal realism defines legal rights and duties as whatever the court says they are. Out of all the legal theories we have examined in class, I personally believe that this is the one that best exemplifies the purpose of law and would best suit and benefit society. The Dimensions of Law textbook defines legal realism as “the school of legal philosophy that examines law in a realistic rather than theoretical fashion; the belief that law is determined by what actually happens in court as judges interpret and apply law.”