This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

What Do Independent Directors Know? Evidence from Their Trading

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Ravina, Enrichetta
Sapienza, Paola

Additional information is available for the following registered author(s):

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.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.cepr.org/pubs/dps/DP6046.asp
File Format: application/pdf
File Function:
Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Publisher Info
Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6046.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: Jan 2007
Date of revision:
Handle: RePEc:cpr:ceprdp:6046

Contact details of provider:
Postal: Centre for Economic Policy Research, 53--56 Great Sutton Street, London EC1V 0DG
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820

Order Information:
Email:

For technical questions regarding this item, or to correct its listing, contact: ().

Related research
Keywords: Boards of directors; Corporate governance; Independent Directors;

Other versions of this item:

Find related papers by JEL classification:
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Fama, Eugene F & French, Kenneth R, 1992. " The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-65, June. [Downloadable!] (restricted)
  2. Barber, Brad M & Lyon, John D, 1997. " Firm Size, Book-to-Market Ratio, and Security Returns: A Holdout Sample of Financial Firms," Journal of Finance, American Finance Association, vol. 52(2), pages 875-83, June. [Downloadable!] (restricted)
  3. Yermack, David, 1996. "Higher market valuation of companies with a small board of directors," Journal of Financial Economics, Elsevier, vol. 40(2), pages 185-211, February. [Downloadable!] (restricted)
  4. David Yermack, 2004. "Remuneration, Retention, and Reputation Incentives for Outside Directors," Journal of Finance, American Finance Association, vol. 59(5), pages 2281-2308, October. [Downloadable!] (restricted)
  5. Leslie A. Jeng & Andrew Metrick & Richard Zeckhauser, . "Estimating the Returns to Insider Trading," Rodney L. White Center for Financial Research Working Papers 19-99, Wharton School Rodney L. White Center for Financial Research. [Downloadable!]
  6. Randall Morck, 2004. "Behavioral Finance in Corporate Governance - Independent Directors, Non-Executive Chairs, and the Importance of the Devil’s Advocate," NBER Working Papers 10644, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Rozeff, Michael S & Zaman, Mir A, 1988. "Market Efficiency and Insider Trading: New Evidence," Journal of Business, University of Chicago Press, vol. 61(1), pages 25-44, January. [Downloadable!] (restricted)
  8. Benjamin E. Hermalin & Michael S. Weisbach, 1991. "The Effects of Board Composition and Direct Incentives on Firm Performance," Financial Management, Financial Management Association, vol. 20(4), Winter.
    Other versions:
  9. Benjamin E. Hermalin & Michael S. Weisbach, 2001. "Boards of Directors as an Endogenously Determined Institution: A Survey of the Economic Literature," NBER Working Papers 8161, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  10. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "High Wage Workers and High Wage Firms," Econometrica, Econometric Society, vol. 67(2), pages 251-334, March.
    Other versions:
  11. Eliezer M. Fich, 2005. "Are Some Outside Directors Better than Others? Evidence from Director Appointments by Fortune 1000 Firms," Journal of Business, University of Chicago Press, vol. 78(5), pages 1943-1972, September. [Downloadable!]
  12. Seyhun, H. Nejat, 1986. "Insiders' profits, costs of trading, and market efficiency," Journal of Financial Economics, Elsevier, vol. 16(2), pages 189-212, June. [Downloadable!] (restricted)
  13. Randall Morck, 2004. "Behavioral Finance in Corporate Governance-Independent Directors and Non-Executive Chairs," Harvard Institute of Economic Research Working Papers 2037, Harvard - Institute of Economic Research. [Downloadable!]
  14. Paul Gompers & Joy Ishii & Andrew Metrick, 2003. "Corporate Governance And Equity Prices," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 107-155, February. [Downloadable!] (restricted)
    Other versions:
  15. Renée B. Adams & Heitor Almeida & Daniel Ferreira, 2005. "Powerful CEOs and Their Impact on Corporate Performance," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 18(4), pages 1403-1432. [Downloadable!] (restricted)
  16. Seyhun, H Nejat, 1992. "Why Does Aggregate Insider Trading Predict Future Stock Returns?," The Quarterly Journal of Economics, MIT Press, vol. 107(4), pages 1303-31, November. [Downloadable!] (restricted)
  17. Weisbach, Michael S., 1988. "Outside directors and CEO turnover," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 431-460, January. [Downloadable!] (restricted)
  18. Eliezer M. Fich & Anil Shivdasani, 2006. "Are Busy Boards Effective Monitors?," Journal of Finance, American Finance Association, vol. 61(2), pages 689-724, 04. [Downloadable!] (restricted)
  19. B. Espen Eckbo & David C. Smith, 1998. "The Conditional Performance of Insider Trades," Journal of Finance, American Finance Association, vol. 53(2), pages 467-498, 04. [Downloadable!] (restricted)
  20. Jaffe, Jeffrey F, 1975. "On the Use of Public Information in Financial Markets," Journal of Finance, American Finance Association, vol. 30(3), pages 831-39, June. [Downloadable!] (restricted)
  21. Hermalin, Benjamin E & Weisbach, Michael S, 1998. "Endogenously Chosen Boards of Directors and Their Monitoring of the CEO," American Economic Review, American Economic Association, vol. 88(1), pages 96-118, March. [Downloadable!] (restricted)
    Other versions:
  22. Paul W. MacAvoy & Ira M. Millstein, 1999. "The Active Board Of Directors And Its Effect On The Performance Of The Large Publicly Traded Corporation," Journal of Applied Corporate Finance, Morgan Stanley, vol. 11(4), pages 8-20. [Downloadable!] (restricted)
  23. Klein, April, 1998. "Firm Performance and Board Committee Structure," Journal of Law & Economics, University of Chicago Press, vol. 41(1), pages 275-303, April.
  24. Mitchell A. Petersen, 2005. "Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches," NBER Working Papers 11280, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  25. Lakonishok, Josef & Lee, Inmoo, 2001. "Are Insider Trades Informative?," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 14(1), pages 79-111.
  26. Leslie A. Jeng & Andrew Metrick & Richard Zeckhauser, 2003. "Estimating the Returns to Insider Trading: A Performance-Evaluation Perspective," The Review of Economics and Statistics, MIT Press, vol. 85(2), pages 453-471, 07. [Downloadable!] (restricted)
  27. Mariassunta Giannetti & Andrei Simonov, 2006. "Which Investors Fear Expropriation? Evidence from Investors' Portfolio Choices," Journal of Finance, American Finance Association, vol. 61(3), pages 1507-1547, 06. [Downloadable!] (restricted)
  28. Mehran, Hamid, 1995. "Executive compensation structure, ownership, and firm performance," Journal of Financial Economics, Elsevier, vol. 38(2), pages 163-184, June. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Renée Adams & Benjamin E. Hermalin & Michael S. Weisbach, 2008. "The Role of Boards of Directors in Corporate Governance: A Conceptual Framework and Survey," NBER Working Papers 14486, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Ferreira, Daniel & Ferreira, Miguel A. & Raposo, Clara C., 2008. "Board Structure and Price Informativeness," CEI Working Paper Series 2008-4, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
Statistics
Access and download statistics

Did you know? Use the JEL tree to browse through the database by subfields.

This page was last updated on 2009-11-25.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.