Finance Series
Big Brother Is Watching You: The Effect of the CSISC Shareholding Program on Insider Trading Profitability
Working Paper Author/Authors
Guoqiang Hu
Tianjin University of Finance & Economics
IE Business School
Jason Zezhong Xiao
University of Macau
Key Finding
The CSISC share program is an inexpensive way to ensure small shareholders of Chinese firms aren't expropriated via insider trades
Abstract
In 2016, the China Securities Regulatory Commission authorized the China Securities Investor Services Center (CSISC) to purchase 100 common shares of each publicly traded company in three pilot regions. We hypothesize that the CSISC’s shareholdings made insiders trade more cautiously in their firm’s shares, which reduced their gains from insider trading. Using a difference-in-differences approach, we find support for our hypothesis. The program also reduced losses avoided by insider sales, which experienced a statistically and economically significant drop. The program reduced the profitability of insider trades via greater minority shareholder dissent at shareholder meetings.
