Are All Independent Directors Equally Informed? Evidence Based on Their Trading Returns and Social Networks

• 成果类型: Article
• 署名作者: Cao, Ying; Dhaliwal, Dan; Li, Zengquan; Yang, Yong George
• 署名单位: Chinese University of Hong Kong; University of Arizona; Korea University; Shanghai University of Finance & Economics
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2013.1892
• 发表日期: 2015
• 页码: 795-813
• 关键词: Social networks; Insider trading; independent directors

摘要

We study the impact of social networks on the ability of independent directors to obtain private information from their firms' executives. We find that independent directors socially connected to their firms' senior executives earn significantly higher returns than unconnected independent directors in stock sales transactions. The network effect on independent directors' trading profitability is stronger in firms with higher information asymmetry and with more powerful executives. In addition, the trading returns of independent directors previously unconnected with firm executives increase after the arrival of a connected executive and drop after the connected executive leaves the firm. Moreover, the net stock sales by connected directors predict future negative news for up to three quarters. As a comparison, the trading returns of connected and unconnected independent directors do not differ significantly in stock purchases. Taken together, our results suggest that social connections help independent directors gain access to private bad news information from firms' senior executives.