Culture and Enforcement Effects on Insider Trading, Market Reactions, and Firm Value: Evidence from the Market Abuse Regulation

This dissertation examines the changes to the European Union (EU) law on market abuse, market manipulation, and insider trading regulation made when the Market Abuse Regulation (MAR) was enacted. I detail the changes in comparison to the previous legislation under the Market Abuse Directive (MAD) and changes several Member States made to their domestic legislation to achieve compliance with MAR. I highlight the sanctions imposed in several Member States to argue the severity of punishment under MAR. This analysis provides evidence that MAR brought about a plausibly exogenous shock to the cost of insider trading. Next, I examine the effects of firm- and country-level culture on insider trading profitability around the announcement, implementation, and first enforcement of MAR. Insiders from high ESG firms tend to engage in less profitable insider trading after the first enforcement of MAR. Insiders from high ESG firms also tend to engage in more (less) profitable purchasing (selling) activity in the post-announcement and post-effective periods. But these effects vary by firm size. I also study the "E" and "S" portions of ESG and find these culture measures lead to differences in profitability in the post-MAR period. High individualism contributes to less profitable trading after the first enforcement of MAR. High uncertainty avoidance and high corruption contribute to more (less) profitable selling (purchasing) activity after the first enforcement of MAR. Market reactions are significantly negative for the publication of sanctions imposed under MAR. This negative reaction is stronger when the enforcement (1) involves illegal insider trading, (2) is against a legal person, (3) imposes a larger pecuniary amount, and (4) was conducted prior to COVID-19 pandemic. This effect differs by firm- and country-level culture. High ESG and high environmental consciousness contribute to higher firm value after the first European Securities and Market Authority (ESMA) publication of MAR enforcements. Country-level culture and insider trading profitability do not contribute to firm value after the first ESMA report on MAR enforcements is published.