Insider Trading : Does Being a Neighbor of the SEC Matter?

Using a perception-based crime deterrence approach, we present evidence that corporate insiders located closer to the Securities and Exchange Commission (SEC) regional offices trade less frequently on their own company's stocks, while earn higher abnormal returns from such insider transactions. These results are robust to several additional tests. Our further analysis indicates that such differences in trading profitability are mitigated during the periods of a high level of legal jeopardy such as the periods around earnings announcements and mergers and acquisitions. These findings are consistent with the view that SEC oversight has an impact on insiders' trading behavior by influencing their perceptions of sanctions risk