Inside the Director Network: When Directors Trade Inside, Interlock, and Unconnected Stocks

76 Pages Posted: 14 Apr 2014 Last revised: 23 Nov 2017

See all articles by Henk Berkman

Henk Berkman

University of Auckland - Business School

Paul D. Koch

Iowa State University - Finance Department; Iowa State University - Finance Department

P. Joakim Westerholm

University of Sydney Business School; Financial Research Network (FIRN)

Date Written: November 22, 2017

Abstract

Corporate directors earn abnormal returns when they buy their own company’s stock as insiders. Directors also outperform when they buy stocks with an interlock connection, where a co-board member is an insider. Directors do not consistently earn abnormal returns when they sell these connected stocks, or when they buy or sell stocks with no inside or interlock connection. Our findings are similar for trades that are made by directors before corporate events, and for director trades made on behalf of family members.

Keywords: Informed trading, insider trading, information asymmetry, market efficiency, interlocking board, corporate director network, family network, social network analysis

JEL Classification: G14, G19

Suggested Citation

Berkman, Henk and Koch, Paul D. and Westerholm, P. Joakim, Inside the Director Network: When Directors Trade Inside, Interlock, and Unconnected Stocks (November 22, 2017). Available at SSRN: https://ssrn.com/abstract=2424527 or http://dx.doi.org/10.2139/ssrn.2424527

Henk Berkman (Contact Author)

University of Auckland - Business School ( email )

Private Bag 92019
Room: 577
Auckland
New Zealand
(64 9) 3737599 Ext. 7181 (Phone)
(64 9) 3737406 (Fax)

Paul D. Koch

Iowa State University - Finance Department

Ivy College of Business
Ames, IA 50011
United States
5152942491 (Phone)

HOME PAGE: http://https://www.business.iastate.edu/directory/pkoch/

Iowa State University - Finance Department

Ames, IA 50011-2063
United States
5152942491 (Phone)

P. Joakim Westerholm

University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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