Network Centrality, Connections, and Information: Evidence from CEO Insider Trading Gains

49 Pages Posted: 24 Sep 2019 Last revised: 4 Dec 2019

See all articles by Rwan El-Khatib

Rwan El-Khatib

Zayed University

Dobrina Georgieva Jandik

University of St. Thomas

Tomas Jandik

University of Arkansas - Sam M. Walton College of Business

Date Written: November 7, 2019

Abstract

CEO’s insider trading gains are affected by the position of the CEO within the hierarchy of all business executives, as assessed by the CEO’s network centrality. CEOs with high centrality are associated with significantly more positive abnormal returns following purchases of their company’s stocks, compared to the CEOs with low centrality. These results hold even after considering potential endogeneity, and CEO personal characteristics and firm determinants related to network centrality. High-centrality CEOs earn higher abnormal returns following their share purchases primarily in firms that are riskier, have weak corporate governance, or are managed by a CEO with no career background in finance. High centrality CEOs also generate more significant personal gains by selling their shares prior to bad news event experienced by their firm. Finally, trading gains are further positively affected by CEO having past connections to the current CFO. Our findings suggest high network centrality, as well as bilateral connections to people with financial knowledge, allow CEOs to more efficiently gather information about the value of their company.

Keywords: Network Centrality, Insider Trading, Social Networks, CEO Connections

JEL Classification: G14, L14, G30

Suggested Citation

El-Khatib, Rwan and Jandik, Dobrina Georgieva and Jandik, Tomas, Network Centrality, Connections, and Information: Evidence from CEO Insider Trading Gains (November 7, 2019). Available at SSRN: https://ssrn.com/abstract=3453835 or http://dx.doi.org/10.2139/ssrn.3453835

Rwan El-Khatib

Zayed University

P.O. Box 4783
Abu Dhabi
United Arab Emirates

Dobrina Georgieva Jandik

University of St. Thomas ( email )

1000 LaSalle Ave.
Minneapolis, MN 55403
United States

Tomas Jandik (Contact Author)

University of Arkansas - Sam M. Walton College of Business ( email )

WCOB 302
Fayetteville, AR 72701
United States
479-575-6147 (Phone)

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