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

Abstract

CEO’s insider trading gains are affected by the position of the CEO within the hierarchy of all executives, as assessed by network centrality. CEOs with high centrality earn superior abnormal returns following their company’s stock purchases, consistent with social capital advantage. Social capital and trading gains are positively associated primarily in firms that are riskier, have weak governance, or are managed by CEOs with no background in finance. High centrality CEOs also gain by selling their shares prior to a bad news event experienced by their firm. Finally, trading gains are positively affected by CEOs having past connections to the CFOs.

Keywords: Network Centrality, Insider Trading, Social Networks, Social Capital

JEL Classification: G14, L14, G30