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Independent Director Tenure and Corporate Governance: Evidence from Insider Trading
Published online by Cambridge University Press: 19 April 2023
Abstract
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Executives trade more profitably and opportunistically over the course of the tenure of independent directors (IDs). IDs’ increased connections with and hence allegiance to executives are likely the channel through which ID tenure can affect executive trading. Executive opportunism is mitigated by disciplinary factors that include the presence of a firm’s internal trading policy, blockholders, and IDs with legal expertise as well as the risk of shareholder-initiated derivative lawsuits. These results point to an association between long-tenured IDs and weakened corporate governance.
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This is an Open Access article, distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives licence (http://creativecommons.org/licenses/by-nc-nd/4.0), which permits non-commercial re-use, distribution, and reproduction in any medium, provided that no alterations are made and the original article is properly cited. The written permission of Cambridge University Press must be obtained prior to any commercial use and/or adaptation of the article.- Copyright
- © The Author(s), 2023. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington
Footnotes
We thank an anonymous referee, Renee Adams, Philip Bond, Travers Child, David Erkens, Viktar Fedaseyeu, Jarrad Harford, Sterling Huang, Paul Malatesta (the editor), Ronald Masulis, Holger Spamann, Frank Yu, and conference and seminar participants at CEIBS, the 2017 Financial Management Association annual meetings (Asia), the 2017 Financial Management Association annual meetings, the 2017 Australasian Finance and Banking Conference, Peking University, Renmin University, Singapore Management University, and Tsinghua University for their comments. We also thank Yuan Meng and Huilin Yang for their excellent research assistance. Gao acknowledges the fund support by the “Fundamental Research Funds for the Central Universities” in UIBE (19QN10). All remaining errors are our own.
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