Kim, Sung Hui --- "What governmental insider trading teaches us about corporate insider trading" [2013] ELECD 551; in Bainbridge, M. Stephen (ed), "Research Handbook on Insider Trading" (Edward Elgar Publishing, 2013) 166

Book Title: Research Handbook on Insider Trading

Editor(s): Bainbridge, M. Stephen

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9780857931849

Section: Chapter 10

Section Title: What governmental insider trading teaches us about corporate insider trading

Author(s): Kim, Sung Hui

Number of pages: 25

Abstract/Description:

There has been much academic debate about whether corporate insider trading should be banned. As Stephen Bainbridge recounts in the Introduction to this volume, that debate was sparked by Henry Manne’s influential 1966 book, Insider Trading and the Stock Market. Manne contended that corporate insider trading should be deregulated because the benefits to both society and the firm whose stock was traded outweighed the costs. He provided two basic rationales. First, Manne argued that corporate insider trading has the effect of moving securities prices toward the level that they would have reached had the inside information been made public. This increase in price accuracy helps allocate capital to its most productive uses. Secondly, and more provocatively, Manne argued that corporate insider trading was “the most appropriate device for compensating entrepreneurs in large corporations.” Unlike ordinary managers whose service is easy to monitor and “can be purchased like any commodity in the marketplace,” it is difficult to ascertain the value of an entrepreneur’s services in the form of a predetermined salary. Instead, Manne argued, insider trading provides a means by which companies can compensate entrepreneurs for the value of their innovations.