Information Disclosure and Insider Trading Around Board Meetings

Abstract

This study examines firm disclosure, investor reaction, and directors’ insider trading around regular board meetings. Using a novel dataset of U.S. companies’ regular board meeting schedules specified in corporate by-laws, I find the following. First, firms are three times more likely to disclose news on the day of the board meeting compared to other days. Second, investors react to news on board meetings but do not seem to anticipate the timing of news disclosure ― realized volatility increases in response to news disclosure but implied volatility does not build up in advance. Third, outside directors’ insider trades made before a board meeting earn abnormal returns, suggesting that outside directors trade on private information obtained in preparation for board meetings. This study establishes board meetings as important information events for investors as a precursor to firm disclosure and for outside directors as an opportunity for informed trading.