Insider Trading and Corporate Governance: The Case of Germany

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