The Effects of Insider Trading Restrictions : Evidence from Historical Dividend Initiations and Omissions

We investigate whether insider trading restrictions had their intended effects during the 1960s and 1970s. We do so by examining insider trading and stock market behavior prior to dividend initiations and omissions announced between 1935 and 1974. Contrary to existing research and commentary, we show that restrictions had meaningful effects. During the 1960s and 1970s, insiders sold less frequently prior to dividend omissions, and the average profitability of insider trades declined. In addition, the positive (negative) stock price runup prior to dividend initiations (omissions) decreased after 1961. The results provide some vindication for the SEC's adjudicative approach toward insider trading