The sun side of insider trading: An Ethical perspective by financial performance analysis in Hong Kong

Ricky W. F. Szeto

Associate Professor of Business Administration, Director of Enterprise and Social Development Research Centre, Hong Kong Shue Yan University, 10 Wai Tsui Crescent, Braemar Hill Road, North Point, Hong Kong

E-mail: wfszeto@hksyu.edu Tel: (852) 2570 7110; Fax: (852) 2806 8044

Accepted 02 January 2013

Abstract

Insider trading has been a hot topic in financial research.  However, the business ethics literature questions the societal value of insider trading.  In this study, I examine how insider trading may benefit all shareholders instead of channeling wealth to the insiders only.  Using 7,885 firm-year observations in Hong Kong, the author finds that there is a positive relation between annual return and abnormal annual return with insider trading activity.  This study shows evidence that insider trading is beneficial to society by providing correctional signal to the market about the firm value and increasing shareholders wealth.

Keywords: Agency problem; Business ethics; Corporate governance; Ethics; Financial performance; Insider trading; Shareholder