New Evidence On The Effectiveness Of The Insider Trading Sanctions Act Of 1984

Abstract

This study examines the effectiveness of the Insider Trading Sanctions Act (ITSA) of 1984 by employing a new approach. This approach examines the effect of ITSA in changing insider trading behavior around seasoned equity offering (SEO) announcements. Results of this study provide strong evidence of deferred net selling by insiders until after the SEO announcement date. Deferred net selling is evident for both the pre-ITSA and post-ITSA periods. We find limited evidence showing that the deferred net selling is significantly increased after passage of ITSA. Any effect of ITSA predominantly affects broad trading, rather than concentrated trading.