Does Trading Really Boost Performance?

Abstract

Using unique and proprietary daily trade data from all qualified market participants, our study empirically investigates the impact of trading on firm performance in a setting where CEO pay is not linked to stock performance. Based on a dataset including 3,775,646 daily trades for 414 NZX-listed firms and 35 qualified market participants over the period 1995-2011, we find that aggressive trading does not improve firm performance as documented in previous research. In fact, we provide significant evidence that aggressive trading actually hurts firm performance. Our study underlines the crucial role of CEO equity-based pay in the theory of governance through trading.

Keywords: governance through trading, firm performance, stock-incentivised compensation

JEL Classification: G10, G20, G30, N20