Abstract
We study the impact of social networks on the ability of independent directors to obtain private information from their firms' executives. We find that independent directors socially connected to their firms' senior executives earn significantly higher returns than unconnected independent directors in stock sales transactions. The network effect on independent directors' trading profitability is stronger in firms with higher information asymmetry and with more powerful executives. In addition, the trading returns of independent directors previously unconnected with firm executives increase after the arrival of a connected executive and drop after the connected executive leaves the firm. Moreover, the net stock sales by connected directors predict future negative news for up to three quarters. As a comparison, the trading returns of connected and unconnected independent directors do not differ significantly in stock purchases. Taken together, our results suggest that social connections help independent directors gain access to private bad news information from firms' senior executives. This paper was accepted by Mary Barth, accounting.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
