Insider Trading and Corporate Governance: The Case of Germany


  • We thank participants of the 2005 EFM Symposium on European Corporate Governance, of the Third meeting of SFB/TR 15 ‘Governance and the Efficiency of Economic Systems’ and seminar participants at the University of Tübingen for valuable comments. Financial support from Deutsche Forschungsgemeinschaft through SFB/TR 15 is gratefully acknowledged. We also thank an anonymous referee for his valuable comments and suggestions on earlier versions of this paper.


We analyse transactions by corporate insiders in Germany. We find that insider trades are associated with significant abnormal returns. Insider trades that occur prior to an earnings announcement have a larger impact on prices. This result provides a rationale for the UK regulation that prohibits insiders from trading prior to earnings announcements. Both the ownership structure and the accounting standards used by the firm affect the magnitude of the price reaction. The position of the insider within the firm has no effect, which is inconsistent with the informational hierarchy hypothesis.