The impact of stringent insider trading laws and institutional quality on the cost of capital

Kwabi, Frank O., Boateng, Agyenim, and Adegbite, Emmanuel (2018) The impact of stringent insider trading laws and institutional quality on the cost of capital. International Review of Financial Analysis, 60. pp. 127-137.

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Abstract

This paper examines the effects of interaction between stringent insider trading laws, institutional quality and equity portfolio allocation on the cost of capital. Using a dataset drawn from 44 countries over the period from 2001-2015, we find that stringent insider trading laws interact with institutional quality and foreign equity portfolio allocation to reduce the country-level cost of capital. Further analysis from a quasi-natural experiment based on the 2008-2009 global financial crisis suggests that the findings are robust to endogeneity. Our results imply that the enactment of stringent insider trading laws and their interplay with the quality of institutions are not only important to portfolio investment allocation decisions but reduce the country-level cost of capital.

Item ID: 56607
Item Type: Article (Research - C1)
ISSN: 1873-8079
Keywords: insider trading laws, cost of capital, foreign equity allocation, institutional quality
Copyright Information: © 2018 Elsevier Inc. All rights reserved
Date Deposited: 17 Dec 2018 03:33
FoR Codes: 15 COMMERCE, MANAGEMENT, TOURISM AND SERVICES > 1502 Banking, Finance and Investment > 150201 Finance @ 100%
SEO Codes: 91 ECONOMIC FRAMEWORK > 9104 Management and Productivity > 910402 Management @ 100%
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