Insider trading profits tied to future firm performance and weak governance.
The article reviews how future company performance and corporate governance affect insider trading, with information asymmetry playing a role. Insiders make abnormal profits by using private information about future company performance. Weak corporate governance rules also lead to significant abnormal returns for insiders. Information asymmetry influences the relationship between future company performance and insider trading, as well as between corporate governance and insider trading. This study highlights how asymmetric information conditions drive insider trading, but strong corporate governance helps prevent it.