Sirhan is president of a medium-sized bank. What can he do to lessen the chances of employees or board members taking part in insider trading?

Question

Quizplus · Accepted Answer

The risk of opportunism on behalf of agents is worsened by information asymmetry: The agents are generally better informed than the principals. Managers, executives, and board members tend to have access to private information concerning important company developments that outsiders, especially investors, are not privy to. Often this informational advantage is based on timing-insiders are the first to learn about important developments before the information is released to the public. Although possessing insider information is not illegal and indeed is part of an executive's job, what is illegal is acting upon it through trading stocks or passing on the information to others who might do so. Insider-trading cases, therefore, provide an example of egregious exploitation of information asymmetry.

Sirhan Is President of a Medium-Sized Bank