The Politics of Financial Regulatory Enforcement: A Cross-National Analysis of Insider-Trading Regulations

This article examines the determinants of regulatory enforcement around the world, by statistically analyzing the effects of different policy-making systems on the implementation of insider-trading laws. Behind most of financial collapses was there a moral hazard problem on the market. Equity markets can be a powerful engine of economic growth, but it will be the case only if investors are securely protected in the market from financial abuses and misdeeds. But we can observe a huge cross-national variation in enforcing insider-trading regulations. Our analysis of 44 countries shows that the configuration of domestic policy-making systems has significant intervening effects and channels the pressure of international diffusion into regulatory enforcement. Also, contrary to the conventional class-based analysis, labor and capital could not be on the collision course, but they would collude in opposition to a strict regulatory enforcement. These findings imply that when we try to explain policy changes, we need to reevaluate the impact of network effects of international diffusion and domestic class politics.