Corporate Internal Compensation Dispersion, Ownership Concentration And Insider Trading

In recent years, the rapid development of financial markets provide the opportunity for not only our country’s listed companies and investors but also criminals, and the word “insider trading” has become a hot topic both in academia and the public. Exactly, insider trading is a stock market corruption. Authorities abuse of power for personal benefit, and this kind of temptation is hard to resist for no matter who he is. The appearance of insider trading increases with the growth of the stock market trading volume, especially in emerging markets. In China, since 2007 the number of insider trading punishment decision from SFC grows explosively. For example, there were respectively 33 and 44 cases in 2013 and 2014. The existence of insider trading which has the negative moral evaluation will definitely destructs the “true and fair” principle in the market, and causes serious damage to the development of market economy. The paper is based on the above research background, exploring the influence factors of insider trading from the aspect of the corporate internal compensation dispersion, as well as ownership concentration differences among the companies.According to the serious social problem of increasing number of insider trading, this paper takes listed firms transferring its control from 2009 to 2013 as the object of study, and focuses on the following 2 issues: firstly, this paper discusses the problems whether corporate internal compensation dispersion affects insider trading positively; secondly, this paper makes a research on the relationship between the two considering ownership concentration differences. By controlling the other factors influencing the insider trading, for example, corporate size, corporate performance, the size of independent directors and the external marketing environment, this paper has found evidences to prove the positively incentive effect of compensation dispersion, no matter from the pay gap among executives or between executives and staff.In order to test the effects of ownership concentration differences on the relationship of corporate internal compensation dispersion and insider trading, this paper adds the regression analysis of the two depending on dividing into 2 groups using the indicator of largest shareholder stake. The results indicate that the high degree of ownership concentration would restrain corporate internal compensation dispersion’s acceleration on the insider trading. This indicates that when considering the influence factors of insider trading, we should pay attention to the ownership concentration since it will affect the enterprise’s internal operating environment as an important part of corporate governance. And higher ownership concentration makes the shareholders pay more attention to the corporate daily management, which decreases the supervision cost, reduce the degree of information asymmetry and ease the contradiction from agent problem.The main research contribution of this paper has following three points:(1) Provides more empirical data and new research perspectives for insider trading, which increases the empirical research data of insider trading for our country and focuses on the corporate internal compensation dispersion.(2) Explores the effects of corporate internal compensation dispersion on the insider trading; reveals the positive influence from the compensation dispersion to the insider trading; provides theoretical basis and experience evidence for perfecting the design of corporate compensation dispersion.(3) Considers the effects of ownership concentration on the relationship of corporate internal compensation dispersion and insider trading; indicates the adjusting role of ownership concentration which will restrain the acceleration from the compensation dispersion to insider trading.