Despite the fact that a number of economists and philosophers of late defend insider trading both as a viable and useful practice in a free market and as not immoral, I shall question the value of insider trading both from a moral and an economic point of view. I shall argue that insider trading both in its present illegal form and as a legalized market mechanism undermines the efficient and proper functioning of a free market, thereby bringing into question its (...) own raison d'etre. It does so and is economically inefficient for the very reason that it is immoral. Thus this practice cannot be justified either from an economic or a moral point of view. Insider trading is the reverse of speculation. It is reward without risk, wealth generated — and injury done to others — by an unfair advantage in information ... [T]he core principle is clear: no one should profit from exploitation of important information not available to the public. (shrink)

The primary objective of this article is to develop a framework for analyzing the ethical foundations and implications of shareholder wealth maximization (SWM). Distinctions between SWM and the more widely examined construct of profit maximization are identified, the most significant being the central role played in SWM by the market mechanism for pricing the corporation''s securities. It is argued that empirical tests concerned with evaluating the ethical implications of SWM will almost surely involve a joint hypothesis. A number of recent (...) empirical studies aimed at testing hypotheses with explicit ethical content are reviewed. (shrink)

A recent article in this Journal argued that insider trading is an unethical practice leading to an inefficiently functioning market. The debate on this topic has primarily pitted ethical defenses of prohibition against economic arguments extolling its allowance. In addition to being incomplete, this approach ignores other unwanted economic effects of prohibition itself and unethical implications of its existence. This article shows that Adam Smith's free market concept, when properly interpreted, provides all the incentive structure necessary for an efficient and (...) ethical marketplace even when insider trading is permitted. (shrink)