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<p>This paper provides empirical evidence that insider opportunistic trading increases the likelihood of forced chief executive officer (CEO) turnover, but not voluntary CEO turnover. To identify the causal effect, I study an exogenous shock— the enactment of SEC Rule 10b5-1—and find that the enactment reduces the likelihood of forced CEO turnover. To analyze the possible reason for the results, I document that opportunistic insider trading (especially insider sells) increases the likelihood of undertaking an acquisition and reduces announcement returns. Firms with aggressive insider trading also are more likely to become takeover targets. Together, the evidence suggests that the board fires CEOs to prevent the leakage of important information regarding corporate investments, such as acquisitions, and to avoid acquiring by other companies.</p>

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The Dark Side of Insider Trading

  • 期刊论文

  • 出版模式：

    开放获取

  • 发表日期：

    2025年7月15日

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  • Keming Li

摘要

This paper provides empirical evidence that insider opportunistic trading increases the likelihood of forced chief executive officer (CEO) turnover, but not voluntary CEO turnover. To identify the causal effect, I study an exogenous shock— the enactment of SEC Rule 10b5-1—and find that the enactment reduces the likelihood of forced CEO turnover. To analyze the possible reason for the results, I document that opportunistic insider trading (especially insider sells) increases the likelihood of undertaking an acquisition and reduces announcement returns. Firms with aggressive insider trading also are more likely to become takeover targets. Together, the evidence suggests that the board fires CEOs to prevent the leakage of important information regarding corporate investments, such as acquisitions, and to avoid acquiring by other companies.