The purpose of this study is to examine and distinguish different role of different corporate governance mechanisms in mitigating insider trading. Internal and external governance have different problems and mechanisms in limiting the extent of exploiting of private information by insiders. We found that better-governed firms could mitigate insiders’ profitability more effective than poorer-governed firms. Besides, the more reputable underwriters hired during IPO events, the lower the abnormal returns gained by insiders. In some extent, we emphasize in revealing which mechanism is more influential than the other one. The results show that better external governance mechanism plays active roles in mitigating insider trading when internal mechanism is less pronounced. Hence, we highlight that the quality of internal governance and reputable underwriters hired are more likely as substitutes rather than complements.
In addition, we extend our analysis to examine whether internal and external governance, through cross-monitoring, could be a vigorous mechanism in mitigating the activities of insiders in profiting themselves. Reversely, we found that when better-governed firms work together with reputable underwriters during IPO events, it will be less effective in discouraging insider trading, moreover, it could give chances managers to earn short-term benefits.

English Abstract iii
Acknowledgement iv
Table of Contents v
List of Tables vi
CHAPTER 1 INTRODUCTION 1
CHAPTER 2 LITERATURE REVIEW 6
2.1 Insider Trading 7
2.2 Internal Corporate Governance 8
2.3 External Corporate Governance 10
2.4 Hypotheses Development 11
2.4.1 Corporate Governance and Insider Trading 11
2.4.2 Cross-Monitoring Mechanism and Insider Trading 15
CHAPTER 3 RESEARCH DESIGN 17
3.1 Research Model 17
3.2 Samples and Data Collection 17
3.3 Measure of Insider Trading Profitability 18
3.4 Measure of Corporate Governance 18
3.5 Empirical Methodology 20
CHAPTER 4 EMPIRICAL RESULTS 23
4.1 Descriptive Statistics 23
4.2 Regression Results 25
4.2.1 Corporate Governance and Insider Trading 25
4.2.2 Cross-Monitoring Mechanism and Insider Trading 26
4.2.3 Additional Analysis 27
4.3 Discussion and Implications 29
CHAPTER 5 CONSLUSIONS 32
REFERENCES 34
APPENDIX 47

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