Abstract: The equity division reform has further promoted the resource allocation function of the stock market, but there will be more cases of inroads on the interests of the small and medium shareholders by the controlling shareholders through insider trading. In the past researches, people only paid much attention to the restraining function of the investor protection on the interest transmitting behavior of related party transaction, but little attention is paid to the governance effect of the investor protection on the interest transmitting behavior of insider trading. In fact, to strengthen investor protection can improve the information environment and reduce the insider trading behavior. This can enhance the stock liquidity and reduce the information asymmetry. This conclusion has great significance in guiding China’s security market after the share-splitting reform.

Key words: governance environment; investor protection; stock liquidity; information asymmetry; insider trading