Connected Directors' Trading in Close Periods

Seminar abstract

Insiders, including top executives and directors, have information advantage over other market participants. Information advantage is particularly significant at certain times, for example, before earnings announcements. Therefore, regulators set close periods before earnings announcements to ban directors from trading. During close periods, directors who have external directorship can still trade at other firms. We examine the connected directors' trading behaviour and subsequent market reactions, with a special focus on the close period. We find that, when connected directors' trading is restricted by close periods, the propensity of trading in other firms increases. When they trade, we observe positively correlated market reactions in both firms they work at. This correlation is moderated by the nature of inside information and the business relationship between the two firms. We provide further insight into how connected directors can take advantage of inside information, and the effectiveness of close period regulation.

How to attend this seminar

This seminar is free to attend with no need to register in advance.

We welcome you to join us online on Wednesday 9 November at 2pm

Speaker bio

Dr Yang Zhao

Dr. Yang Zhao is a Senior Lecturer in Financial Data Analysis at the University of Liverpool. He studies the impact of professional and social networks on issues in corporate finance and corporate governance, which includes executive compensation, mergers and acquisitions, executive turnover and insider trading. His research finds that director networks can create informational advantages, which improve companies' operational efficiency when information asymmetry is present. On the other hand, directors can gain managerial power via director networks, which would give rise to entrenchment and excessive compensation. He has published in many of the top journals, including Journal of Corporate Finance, British Journal of Management, Journal of International Financial Markets, Institutions and European Financial Management.