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Ethical Reasoning and the Use of Insider Information in Stock Trading

Mohammad Abdolmohammadi and Jahangir Sultan
Journal of Business Ethics
Vol. 37, No. 2 (May, 2002), pp. 165-173
Published by: Springer
Stable URL: http://www.jstor.org/stable/25074743
Page Count: 9
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Ethical Reasoning and the Use of Insider Information in Stock Trading
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Abstract

The cognitive developmental theory of ethics suggests that there is a positive relationship between ethical reasoning and ethical behavior. In this study, we trained a sample of accounting and finance students in performing competitive stock trading in our state-of-the-art trading room. The subjects then performed trading of stocks under two experimental conditions: insider information, and no-insider information where significant performance-based financial awards were at stake. We also administered the Defining Issues Test (DIT). Ethical behavior, as the dependent variable was measured in a binary scale: whether the subjects used insider information for trading of stocks or not. Ethical reasoning as measured by the DIT P-score indicated statistically significant effect on ethical behavior. The results have important implications for recruitment and training of professionals engaged in the use of financial markets for securities trading.

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