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

Rwan El‐Khatib
Dobrina Georgieva Jandik
Tomas Jandik

Document Type

Article

Source of Publication

SSRN Electronic Journal

Publication Date

1-1-2019

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.

ISSN

1556-5068

Publisher

Elsevier BV

Disciplines

Business

Indexed in Scopus

no

Open Access

yes

Open Access Type

Green: A manuscript of this publication is openly available in a repository

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