Ethical norms of CFO insider trading

Steven Kaplan, Janet A. Samuels, Linda Thorne

Research output: Contribution to journalArticlepeer-review

7 Scopus citations


Insider trading encompasses the buying or selling of stocks based on non-public information about the securities in question. Engaging in insider trading is particularly unethical for a Chief Financial Officer (CFO) who holds a fiduciary responsibility to shareholders and also typically is ethically obligated by his or her professional responsibilities. Although the Securities and Exchange Commission (1934) has expressly forbidden insider trading, the business press suggests insider trading continues. An application of Cooter's [Cooter, R., 1997. Normative failure theory of law. Cornell Law Review 82 (5), 947-979; Cooter, R., 2000. Three effects of social norms on law: Expression, deterrence and internalization. Oregon Law Review 79 (1), 1-22] theory of the law and norms suggests that one explanation for the continuation of insider trading is that although illegal, norms may fail to consider insider trader to be unethical. Nevertheless, our knowledge of the norms regarding insider trading is limited. To address this gap, we examine the ethical norms regarding CFOs' insider trading, and consider the extent to which contextual variables are associated with ethical perceptions of CFO insider trading. We find that insider trading by CFOs is generally perceived to be unethical but not by all participants, nor all ethical measures. Moral equity is particularly informative for understanding the ethicality of CFO insider trading. When relying on the multidimensional ethics scale (MES) measure of moral equity, our results reveal that contextual factors, including trading method used (stock options or share equity) and the direction of earnings surprise (favorable or unfavorable) are significant. We also found that participants that possessed more work experience or financial expertise had a greater tendency to consider CFO insider trading to be unethical than those with less work experience or financial expertise, which suggests the importance of training and education of the general public. In addition, our findings suggest that tougher sanctions will encourage compliance with existing insider trading laws. Implications of our findings for public policy are discussed.

Original languageEnglish (US)
Pages (from-to)386-400
Number of pages15
JournalJournal of Accounting and Public Policy
Issue number5
StatePublished - Sep 2009


  • CFO
  • Ethics
  • Insider trading
  • Multidimensional ethics scale

ASJC Scopus subject areas

  • Accounting
  • Sociology and Political Science


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