ANALYSIS OF A PAPER

ANALYSIS OF A PAPER

Introduction

This analysis looks at the paper on insider trading and corporate governance that was written by Huang, Hou and Cheng in 2012. The key aim of the study was to assess the cross-cutting relationship that exists between illegal insider trading and the organizational corporate governance. Using a case study of Taiwan, the paper acknowledged that Insider trading has grown to be a major problem when in Taiwan, insider trading has resulted in a high loss to the investors and negative effect to the Taiwanese stock market. The research observed that most of the illegal scandals (involving insider trading ) in Taiwan have been heavily linked to poor corporate governance making the government enact legislation that was meant to ensure publicly traded companies in the country have effective corporate governance.

Based on this information the research key objective was to provide insight into the existing relationship between corporate governance and insider trading mainly in the developing market. The guiding question for the research was, is there a connection between illegal insider trading and the corporate governance in the developing stock markets such as the one for Taiwan? In answering the question and meeting the objectives study evaluated the courts cases that were forwarded to the Taiwan courts by the SFB from 1988 to 2008, which amounted to 78 cases. By using the cases that had been forwarded to the court by the DFB, the research was able to evaluate the case on the basis of factors that led to the illegal trading and tried to establish a connection between insider trading and corporate governance. Using decide on cases as a good approach to giving dependable, reliable, and generalizable research findings.

Previous Literature on the Topic

Most of the previous literature examined in the research inclines to the finding that insider trading has a relation with corporate functionalities. Muelbroek (1992) carried out a study to look at the insider trading in the USA and found out that insider trading in the country between 1980 and 1989 was based on some people using stock prices information to make their buy. Sell, or hold decision before the information came into the public domain which put other investors without the privilege of the same information at an advantage. Generally, in an organization corporate governance is supposed to ensure there is a seamless flow of information, there is transparency, equal treatment of all stakeholders; the business is run with professionalism and integrity, and the board takes the responsibility of ensuring that all the investors are protected from insider trading. As such, the evaluation of the Muelbroek (1992) made a major contribution to the study in the sense that establishing that most of the cases of insider trading involved having a connection between those running the organization and ether an internal or external person, shows that there was deficiency in adhering to the principles of corporate governance.

Another literature evaluated in the study is Fishe and Robe (2004) which looked at the effect of insider trading the stock market as a whole. This literature drew a picture of the extent to which insider trading can affect the entire stock market, by revealing that it negatively affects the liquidity of the market, where most investors are discouraged from participating in the market. Other literature evaluated looked at the composition of the board (which is central to having effective corporate governance), ownership…………………..

 

References List

Fishe, R.P.H., and M.A. Robe. 2004. “The Impact of Illegal Insider Trading in Dealer and Specialist Markets: Evidence from a Natural Experiment.” Journal of Financial Economics 71, no. 3: 461–488.

Hosmer Jr, D. W., Lemeshow, S., & Sturdivant, R. X. 2013) Applied logistic regression (Vol. 398). John Wiley & Sons.

Klein, A. 2002. “Audit Committees, Board of Director Characteristics and Earnings Management.” Journal of Accounting and Economics 33, no. 3: 375–400.

Muelbroek, L.K. 1992. “An Empirical Analysis of Illegal Insider Trading.” Journal of Finance 47, no. 5: 1661–1699.

Mukaka, M. M. 2012. A guide to appropriate use of Correlation coefficient in medical research. Malawi Medical Journal24(3), 69-71.

Pett, M.A., 2015. Nonparametric statistics for health care research: Statistics for small samples and unusual distributions. Sage Publications.

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