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Quick Reminder: Insider Trading Does not Maximize Shareholder Value

Summary:
The NYT had an interesting piece on how top executives and corporate board members at drug companies working on coronavirus vaccines and treatments are cashing out options and selling stock just after big announcements of contracts or progress in research. While there are no explicit allegations, the implication is that many of these sales are based on inside information. It is widely asserted in policy circles, especially by those on the left, that corporations are being run to maximize shareholder value. I have argued that corporations are actually being run to maximize the pay of top executives and pointed to the historically low returns to shareholders in the last two decades. If insider trading is in fact a major phenomena, it is hard to argue that companies are being run to maximize

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The NYT had an interesting piece on how top executives and corporate board members at drug companies working on coronavirus vaccines and treatments are cashing out options and selling stock just after big announcements of contracts or progress in research. While there are no explicit allegations, the implication is that many of these sales are based on inside information.

It is widely asserted in policy circles, especially by those on the left, that corporations are being run to maximize shareholder value. I have argued that corporations are actually being run to maximize the pay of top executives and pointed to the historically low returns to shareholders in the last two decades. If insider trading is in fact a major phenomena, it is hard to argue that companies are being run to maximize returns to shareholders, since insider trading effectively means top executives are stealing from the companies they run. 

The post Quick Reminder: Insider Trading Does not Maximize Shareholder Value appeared first on Center for Economic and Policy Research.

Dean Baker
I am a senior economist at the Center for Economic and Policy Research (@ceprdc). I also run the blog Beat the Press (@beat_the_press)

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