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Insider Trading and Corporate Governance in the Banking Sector. New Lessons on the Entrenchment Effect

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Corporate Governance in Banking and Investor Protection

Part of the book series: CSR, Sustainability, Ethics & Governance ((CSEG))

Abstract

This paper uses panel data estimation under the assumptions of the agency theory of insider trading to identify the factors enhancing bank insider trading. We conclude that the more entrenched the directors, the less prestigious the bank, the bigger the firm and the lower the charter values for high levels of ownership, the higher the intensity of insider trading activity. Thus, the emerging picture is of a scenario where insider trading activity is triggered by the absence of efficient control mechanisms, either external (regulators control the level of bank capitalization but it is not easy for them to also control other opportunistic behaviors) or internal (shareholders fail to control managers when managers’ stakes are very low or very high).

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Acknowledgments

Part of this research was undertaken while one of us was visiting the University Carlos III (Madrid) & the University of Piura. Research Agency of the Spanish Ministry of Economics and Competitiveness (Grants ECO2013-4561P and ECO2016-75631P).

Author information

Authors and Affiliations

  1. University of Salamanca, Salamanca, Spain

    Esther B. del Brio, Javier Perote & Alberto de Miguel

  2. Universidad de Piura, Piura, Peru

    Gerardo Gómez

Authors
  1. Esther B. del Brio
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  2. Javier Perote
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  3. Alberto de Miguel
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  4. Gerardo Gómez
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Corresponding author

Correspondence to Esther B. del Brio .

Editor information

Editors and Affiliations

  1. Department of Business Administration, University of Cantabria, Santander, Spain

    Belén Díaz Díaz

  2. Guildhall Faculty of Business and Law, London Metropolitan University, London, United Kingdom

    Samuel O. Idowu

  3. College of Business Administration, University of Sharjah, Sharjah, United Arab Emirates

    Philip Molyneux

Appendix

Appendix

Variables

Description

Measurement

LNSVI it

Insider trading intensiveness

Absolute value of the logarithm conversion of the SNVI index, measured as the net euro volume of insider purchases standardized by the earnings-per-share ratio

IO it

Insider ownership

Percentage of shares in the hands of bank directors

IO it 2

Quadratic insider ownership

Square of insider ownership

CV it

Charter value

Tobin’s Q

BC it

Bank capital

Ratio of excess equity to total assets

REPU it

Reputation

Dummy variable that takes the value of 1 for Spanish banks ranking among the first 2000 firms within the Forbes Global 2000, and takes the value of zero, otherwise

SIZE it

Bank size

Natural logarithm of the market value of outstanding firms

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del Brio, E.B., Perote, J., de Miguel, A., Gómez, G. (2018). Insider Trading and Corporate Governance in the Banking Sector. New Lessons on the Entrenchment Effect. In: Díaz Díaz, B., Idowu, S., Molyneux, P. (eds) Corporate Governance in Banking and Investor Protection. CSR, Sustainability, Ethics & Governance. Springer, Cham. https://doi.org/10.1007/978-3-319-70007-6_10

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