What Do Independent Directors Know? Evidence from Their Trading

58 Pages Posted: 28 Jun 2007

See all articles by Enrichetta Ravina

Enrichetta Ravina

Federal Reserve Bank of Chicago; Center for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Paola Sapienza

Northwestern University - Kellogg School of Management - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 5 versions of this paper

Date Written: January 2007

Abstract

We compare the trading performance of independent directors and other officers of the firm. We find that independent directors earn positive and substantial abnormal returns when they purchase their company stock, and that the difference with the same firm's officers is relatively small at most horizons. The results are robust to controlling for firm fixed effects and to using a variety of alternative specifications. Executive officers and independent directors make higher returns in firms with weaker governance and the gap between these two groups widens in such firms. Independent directors who sit in audit committees earn higher return than other independent directors at the same firm. Finally, independent directors earn significantly higher returns than the market when they sell the company stock in a window before bad news and around a restatement announcement.

Keywords: Boards of directors, Corporate governance, Independent Directors

JEL Classification: G34

Suggested Citation

Ravina, Enrichetta and Sapienza, Paola, What Do Independent Directors Know? Evidence from Their Trading (January 2007). CEPR Discussion Paper No. 6046, Available at SSRN: https://ssrn.com/abstract=997038

Enrichetta Ravina

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

HOME PAGE: http://https://sites.google.com/view/eravina/research

Center for Economic Policy Research (CEPR) ( email )

33 Great Sutton Street
London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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Brussels
Belgium

Paola Sapienza (Contact Author)

Northwestern University - Kellogg School of Management - Department of Finance ( email )

Evanston, IL 60208
United States
847-491-7436 (Phone)
847-491-5719 (Fax)

National Bureau of Economic Research (NBER)

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United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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