| Summary: | 碩士 === 國立中興大學 === 會計學研究所 === 85 === One of the most controversial issues about insider trading is whether it should be lifted or not. The advocates of insider trading argue that the prohibition on insider trading will lead to an inefficient security market, so it should be lifted to improve the efficiency of the market and accuracy of the security prices. However, one important factor mot considered by this argument is when the less informed outsiders feel they nay face a no-win situation, then the best way to protect themselves from being hurt by the insiders is to turn down the trade with insiders. If this should happen, then the efficiency of the security market will be impaired.Hence the purpose of this study is to try to find some ways to reduce insiders'' incentives to undertake insider trading.
This study uses a game-theoretic model to illustrate the interdependence of two parties'' (agent ane principal)actions. The main results are:
1. In the single-period game, if audit costs are prohibitively high, there exists a pure-strategy equilibrium in which the agent undertakes insider trading and the principal does not audit. If audit costs are not too high,there exists a mixed-strategy equilibrium in which the players randomize their strategies.
2. The inefficient problem due to the high audit costs in the one-period game can be solved by extending the tine horizon infinitely. This can be done by increasing agent''s quasi rent and the threat of not hiring agent in the ruture.
3. In reality, the agent''s action may release some signals about his/her private information. the principal can use these signals to enlarge his strategy space, but he/she cannot fully count on these mew pure strategies to reduce agent''s incentives to insider trading. In this case, the principal still has to randomize his/her strategies to reduce the possibility of insider trading effectively. one remarkable problem is that, once the agent believes the principal''s announcement, the principal may renege not to randomize his strategy to save audit costs. If this opportunistic behavior should happen, the equilibrium may be upset, thus the principal must commit not to renege to sustain the equilibrium.
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