The effect of enforcement intensity on illegal insider trading volume: the case of Taiwan

In this paper, the authors examine the illegal insider trading volume and cumulative abnormal return by the relative variables of the amendment, the change of the securities price, the number of defendants, the penalty and the fine for insider who committed a crime, and the quality of concealed important information. Illegal insider trading is prohibited by the article 157-1 of Securities and Exchange Act in Taiwan. It has been amended three times to provide a sound and rigorous law and completely protect investors. The authors examine the illegal insider trading volume after the amendment to explore whether the Securities and Exchange Act is efficient enough to lower illegal insider trading. The authors find that the change of the securities price and the quality of concealed important information are the critical factors which affect the illegal insider trading volume and cumulative abnormal returns. Nevertheless, the relative variables of the amendment do not show significant effects