Journal of Law, Finance, and Accounting > Vol 5 > Issue 2

Short Memories? The Impact of SEC Enforcement on Insider Leakage

S. Ghoshal, University of Oxford, UK, M. Bengtzen, King’s College London, UK, S. Roberts, University of Oxford, UK,
Suggested Citation
S. Ghoshal, M. Bengtzen and S. Roberts (2020), "Short Memories? The Impact of SEC Enforcement on Insider Leakage", Journal of Law, Finance, and Accounting: Vol. 5: No. 2, pp 273-305.

Publication Date: 08 Sep 2020
© 2020 S. Ghoshal, M. Bengtzen and S. Roberts
Financial markets: Anomalies and behavioral finance,  Corporate Finance: Agency theory and information,  Hypothesis testing,  Time series analysis: Inference and Causality,  Law and Economics
JEL Codes: C32, C58, K42, C14, G14, K22
Time-series modelsfinancial econometricsillegal behavior andthe enforcement of lawnonparametric methods


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In this article:
1. Introduction 
2. Regulatory Setting and Hypotheses 
3. Data and Methodology 
4. Results 
5. Summary and Discussion 


We study the impact of SEC enforcement on information leakage by corporate insiders. We find, for the first time, that SEC enforcement has a significant and immediate deterrent effect on insider leakage. Furthermore, enforcement actions undertaken after a long period of SEC enforcement inactivity display a more significant effect on leakage, consistent with predictions that insiders adapt their behavior depending on how active they perceive the regulator to be. We also study SEC escalations in sanctioning and find that they have a particularly notable deterrent effect, changing insider leakage behavior for approximately 24 months. Our results suggest that capital markets regulators need to intervene on a regular basis in order to maintain deterrence of undesirable behavior.