{"id":38351,"date":"2024-12-18T13:45:00","date_gmt":"2024-12-18T13:45:00","guid":{"rendered":"https:\/\/www.lifeandnews.com\/articles\/?p=38351"},"modified":"2024-12-18T16:57:35","modified_gmt":"2024-12-18T16:57:35","slug":"rules-against-insider-trading-also-boost-innovation-research-finds","status":"publish","type":"post","link":"https:\/\/www.lifeandnews.com\/articles\/rules-against-insider-trading-also-boost-innovation-research-finds\/","title":{"rendered":"Rules against insider trading also boost innovation, research finds"},"content":{"rendered":"\n

D. Brian Blank<\/a>, Mississippi State University<\/a><\/em>; Jiawei Chen<\/a>, University of West Alabama<\/a><\/em>, and Valeriya Posylnaya<\/a>, University of Minnesota Duluth<\/a><\/em><\/p>\n\n\n\n

Strong enforcement<\/a> of insider trading laws<\/a> doesn\u2019t just protect investors \u2013 it encourages businesses to be more innovative, according to our new peer-reviewed research<\/a>.<\/p>\n\n\n\n

In fact, we found that after a company is hit with an insider-trading indictment, it generally produces more patents \u2013 which in turn are cited more by other patents \u2013 than it did before the indictment. It\u2019s also likely to outperform other companies \u2013 at least in terms of innovative activities and operating performance \u2013 that haven\u2019t faced any such charges.<\/p>\n\n\n\n

Wait \u2013 what is insider trading?<\/h2>\n\n\n\n

Insider trading<\/a> is when a director or employee of a company trades their public stock or another security based on important or \u201cmaterial\u201d information about that business. While people often wrongly think<\/a> all insider trading is against the law, it\u2019s actually legal for insiders to trade stocks and earn profits<\/a> based on information that\u2019s also available to the public. What\u2019s illegal is trading based on \u201cnonpublic,\u201d or secret, information.<\/p>\n\n\n\n

The idea is that in a fair and transparent market, all investors should have access to the same information. But while insider trading restrictions<\/a> are intended to help investors, a growing body of research<\/a> suggests they may also help foster innovation within businesses, which is a central driver<\/a> of economic growth<\/a>.<\/p>\n\n\n\n

Our new work, spanning from 1993 to 2017, backs that up. Specifically, we found that stringent enforcement<\/a> of insider trading restrictions<\/a> by the U.S. Securities and Exchange Commission result in enhanced investor protection, improved operating efficiency and greater innovation as measured by patent grants and citations.<\/p>\n\n\n\n

An indictment-to-innovation pipeline?<\/h2>\n\n\n\n

It\u2019s reasonable to ask: Why would enforcing insider trading restrictions affect innovation?<\/p>\n\n\n\n

We think the increased protection they offer against rent-seeking \u2013 which is when corporate insiders gain at the expense of outside investors<\/a> \u2013 contributes to greater trust among investors, encouraging more investment, and boosts profitability. With a more stable and trusting investor base, companies are better capitalized. As a result, they\u2019re better positioned to direct resources toward research and development initiatives and other innovative projects. That can lead to the discovery of new and improved technologies, resulting in more patents, which create incentives for more innovation by protecting inventions.<\/p>\n\n\n\n

We observe that companies operating under stringent insider trading restrictions are able to prioritize growth and innovation, due to outside investors valuing the protections and trusting the firm\u2019s leadership. Managers, aware of increased oversight, prioritize maintaining investor trust, which can facilitate long-term investments. Our study also highlights that firms with strict insider trading policies tend to have lower costs when raising equity.<\/p>\n\n\n\n

Why lawmakers and businesses should care<\/h2>\n\n\n\n

For policymakers, these findings show the value of robustly enforcing insider trading laws. Using them to ensure a fair and transparent market not only protects investors; it also fosters long-term investment and innovation.<\/p>\n\n\n\n

And for businesses, understanding the benefits of these restrictions can lead to more strategic decisions that prioritize long-term growth and innovation. While most insider trading is legal<\/a>, healthy restrictions on the practice remain valuable for firms and investors.<\/p>\n\n\n\n

More broadly, this study shows why it\u2019s important to weigh the benefits of regulations<\/a> and consider how they can strengthen markets. This is particularly important given how complex modern financial markets are. We think there\u2019s wisdom in taking a view of finance<\/a> that goes beyond just generating returns for investors, emphasizing the need to support productive enterprise<\/a>.<\/p>\n\n\n\n

D. Brian Blank<\/a>, Associate Professor of Finance, Mississippi State University<\/a><\/em>; Jiawei Chen<\/a>, Assistant Professor of Finance, University of West Alabama<\/a><\/em>, and Valeriya Posylnaya<\/a>, Assistant Professor of Finance, University of Minnesota Duluth<\/a><\/em><\/p>\n\n\n\n

This article is republished from The Conversation<\/a> under a Creative Commons license. Read the original article<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

D. Brian Blank, Mississippi State University; Jiawei Chen, University of West Alabama, and Valeriya Posylnaya, University of Minnesota Duluth Strong enforcement of insider trading laws doesn\u2019t just protect investors \u2013 it encourages businesses to be more innovative, according to our new peer-reviewed research. In fact, we found that after a company is hit with an […]<\/p>\n","protected":false},"author":56,"featured_media":38352,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[826,5,277,46,295,25,4],"tags":[61,15853,4957,885,891,886,860,2265],"_links":{"self":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/38351"}],"collection":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/users\/56"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/comments?post=38351"}],"version-history":[{"count":1,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/38351\/revisions"}],"predecessor-version":[{"id":38353,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/38351\/revisions\/38353"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media\/38352"}],"wp:attachment":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media?parent=38351"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/categories?post=38351"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/tags?post=38351"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}