Logo Logo

Inside-Trading and Incentives, Journal of Business

Abstract

This paper analyzes shareholders' incentives to sanction inside trading. I show that if a manager of a firm is initially compensated with earnings-contingent contracts, then the welfare of that manager and all of the firm's shareholders can be improved by allowing the manager to trade on his private information. This result is established in the context of a multiple principal (the shareholders)/single agent (the manager) model, with the manager's trades observable ex post, and is robust with respect to the specification of investors' preferences and the definition of stock market equilibrium.

Type

Article

Author(s)

Ronald A. Dye

Date Published

1984

Citations

Dye, A. Ronald. 1984. Inside-Trading and Incentives. Journal of Business. 57(3): 295-313.

KELLOGG INSIGHT

Explore leading research and ideas

Find articles, podcast episodes, and videos that spark ideas in lifelong learners, and inspire those looking to advance in their careers.
learn more

COURSE CATALOG

Review Courses & Schedules

Access information about specific courses and their schedules by viewing the interactive course scheduler tool.
LEARN MORE

DEGREE PROGRAMS

Discover the path to your goals

Whether you choose our Full-Time, Part-Time or Executive MBA program, you’ll enjoy the same unparalleled education, exceptional faculty and distinctive culture.
learn more