Corporate Insider Trading and Social Networks

Minna Martikainen, Jyri Kinnunen, Juha-Pekka Kallunki

Research output: Chapter in Book/Report/Conference proceedingConference contributionScientificpeer-review


We explore whether corporate insiders in different locations in a network of directorship earn different abnormal stock returns on their reported insider transactions. We measure insiders’ connectedness to other insiders by their centrality in the network. Although previous literature shows that insiders’ personal attributes explain a large part of variation in abnormal insider profits, an association between insiders’ trading behavior and their social networks has received little attention. Our results imply that well-networked insiders earn higher abnormal returns after stock purchases, suggesting that insiders use their connectedness and resulting informational advantage over other investors to extract economic rents via insider trading. We also find that the level of connectedness is also associated with reputational costs of misusing insider information, limiting well-networked insiders’ willingness to engage in aggressive selling before stock price declines. These results remain after controlling for various firm- and insider-level characteristics, including executive hierarchy.
Original languageEnglish
Title of host publication25th Annual Conference of the Multinational Finance Society, June 24-27, 2018, Budapest, Hungary
Number of pages41
Place of PublicationBudabest
PublisherMultinational Finance Society
Publication date26.06.2018
Publication statusPublished - 26.06.2018
MoE publication typeA4 Article in conference proceedings


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