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Insider Trading Regulation and the Production of Information: Theory and Evidence James D. Cox 64 Wash. U. L.Q. 475 (1986) Corporate and Securities Law Symposium |
ABSTRACT:
This Article offers a 'free market' explanation of the forces which stimulate the production of the most important form of forward-based information, a company's financial forecast. Part I considers the social value of forecasts. Part II addresses the problem of the financial forecast's authenticity. This Article considers whether external review or collateral disclosure undertakings can overcome this problem. Part III develops a theory of why and how the corporate interest can be served by harnessing the manager's insider trading activity to the production and authentication of financial forecasts. This theory is developed through a proposed compensation schedule for managers which looks toward market-based rewards. In Part IV, the theory is contrasted with available evidence which surprisingly supports each important factor of the managerial compensation schedule. The final part of the Article raises questions yet to be studied before fully embracing the proposed compensation schedule.
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