Unveiling Corruption's Influence on Insider Trading: US Insights

ABSTRACT This study examines the relationship between state‐level political corruption and firm‐level insider trading in the United States. State corruption is proxied using Department of Justice court cases involving corrupt activities. The findings reveal a positive and statistically significant association between political corruption and insider trading purchases by corporate insiders. This relationship is particularly strong among firms that issue financial restatements and those facing higher litigation risk. The results remain robust across alternative measures of insider trading and hold under two‐stage least squares estimation, propensity score matching, and a difference‐in‐differences research design.