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The Deterrent Effect of Whistleblowing on Insider Trading

Published online by Cambridge University Press:  12 September 2023

Jacob Raleigh Open the ORCID record for Jacob Raleigh [Opens in a new window]
Jacob Raleigh*
Affiliation:
Department of Accounting, Monash University
*
Jacob.raleigh@monash.edu
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Abstract

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I study whether the Dodd–Frank whistleblower program reduced informed trading by corporate insiders. To identify the effect, I partition firms based on the extent to which this program affected the likelihood of whistleblowing at each firm. I find a relative reduction in trading profits on purchases made by insiders at more affected firms after the program was initiated. I analyze insider sales in settings where they are more likely to be informed and find a reduction in the number of sales before negatively perceived events. The results suggest that whistleblower protections and rewards can effectively deter insider trading.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 31
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2023. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

This article is based on my dissertation completed at the University of Minnesota. I am grateful to my dissertation committee members at the University of Minnesota Carlson School of Management, Michael Iselin, Gerard McCullough, Pervin Shroff, and Helen Zhang. I also thank an anonymous referee, Mara Faccio (the editor), Jacob Ott, Tjomme Rusticus, Ivy Zhang, and workshop participants at the University of Minnesota, the AAA/Deloitte/J. Michael Cook Doctoral Consortium, and Monash University for their helpful comments.

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