Why do directors trade? Evidence from US multi‐company directors

Purpose - Previous literature suggests various motives and factors affecting insider trading, but little systematic empirical evidence exists on how they affect insider trading decisions jointly. The purpose of this paper is to address this issue. Design/methodology/approach - This study adopts a multivariate fix‐effect framework to jointly examine the factors affecting insider trading decisions using a sample of directors serving multiple companies. The timing of the trading is taken as given and an examination made as to why a specific stock was traded among all the insider stocks the director holds. The observations of the untraded stocks supplement the direct observation of the traded stocks, and allow the issue of insider trading motives to be tested in a multivariate framework with director fix‐effect. Findings - Evidence is found for the joint presence of the following motives in determining directors' trading choices: information; insider preferences for small value companies with significant previous price movement; the avoidance of information sensitive period; and corporate‐level insider trading restrictions. It is empirically shown that director trading motives vary by transaction size. Originality/value - This paper provides systematic empirical evidence on the factors affecting the trading decisions of US directors.