Are Outside Director Trades Informative? Evidence from Acquiring Firms

55 Pages Posted: 21 Feb 2017 Last revised: 25 Jan 2019

Date Written: December 28, 2018


I show that nonroutine premerger trades by acquirer outside directors contain a significant amount of private information and indicate opportunistic trading on the information. I find that outside directors sell shares before less valuable deals and purchase shares before more value enhancing deals. Mergers with selling (buying) beforehand are associated with 22% lower (41% higher) announcement returns. Their trades are more informative than trades by other insiders, appear concentrated in harder-to-value firms, and intensify when more directors trade. Further, more outside directors appear to trade opportunistically in firms where the CEO has significant power, suggesting agency problems may exist.

Keywords: Insider trading, corporate governance, directors, mergers

JEL Classification: G14, G30, G34

Suggested Citation

Gordon, Rachel, Are Outside Director Trades Informative? Evidence from Acquiring Firms (December 28, 2018). Available at SSRN: or

Rachel Gordon (Contact Author)

Towson University ( email )

8000 York Road, ST 100A
Towson, MD 21204
United States

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