However, the authors remind us that if insider trading is legalized, many individuals will choose not to participate, thereby creating adverse effects such as illiquidity. However, those who possess insider tips and wish to trade based on that information might feel they have a right to be exempt from the coercion of disclosure that facilitates equal information. According to Kolb, distributive justice becomes an issue in this context because of the risk associated with investing in financial instruments.
Most basically, and uncontroversially, it involves bodily injury. If, for example, a schoolteacher strikes a child, we would say Insider trading is a violation of justice in the context of modern finance theory. It is postulated that under the veil, many market participants share this same view and will abide by the social contract of modern finance theory in order for justice to predominate. Also, inside traders will attempt to avoid finding themselves at the mercy of someone else with inside information.
There are a number of cognitive barriers that may be involved in the decision to engage in insider trading. Moreover, inside traders may distort the consequences of their behavior by considering that there are millions of investors in the stock market, and the financial gain they achieve is not that significant in comparison to the amount of assets on the market or other ill-gotten gains achieved through crimes and misconducts.
Correspondingly, reward systems of the finance industry have been skewed toward exorbitantly high short-term profits, thus encouraging insider trading and other similar behavior.
Cultural differences can also influence the realization of justice in financial markets. We simply have no choice in such an environment. Such cultural differences make sense, but they pose a threat to international perceptions of stability since the stock market is becoming a global entity. Therefore, there is a conflict between cultural proclivities and distributive justice in the sense that insider trading and equal information are mutually exclusive, and the entire international market will be at odds with such competing mindsets.
Eventually, one of these positions must prevail, and for a large portion of the public to invest in the market, some sort of regulatory justice must dictate trading behavior and separate it from other cultural norms, which is a daunting and possibly unreasonable task. Additionally, should individuals be expected to abide by concepts of distributive justice in relation to family and friends?
Even in the U. Spencer D. Mindlin of Goldman Sachs has recently been charged with insider trading for communicating inside information on exchange-traded funds to his own father. There is debate as to whether these particular actions constitute illegal or unethical activity; [li] given such circumstances, it is difficult to determine the ethical implications of justice.
As previously mentioned, insider trading is a violation of distributive justice in relation to the right of equal information for all traders. According to the theory of John Rawls, traders should avoid engaging in insider trading in order to protect their own interests as well as the interests of others. Since the stock market is becoming an increasingly international entity, inside traders need to consider the consequences of their actions, because more often than not, they will also be subject to the decisions of others. When considering ethical decision-making using a theory of justice, the ends do not justify the means no matter how large or small the affected parties.
This is a very significant concept to consider, although several different theories, philosophies. A merger usually entails an exchange of stock. Mergers add value only if the two companies are worth more together than apart. University of Kansas Libraries. Business Source Premier. Boatright ed.
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