The Impact of Board Gender Diversity on the Profitability of Insider Trading

Abstract: Title: The Impact of Board Gender Diversity on the Profitability of Insider Trading Seminar Date: June 3, 2020 Course: BUSN79 Business Administration: Degree Project in Accounting and Finance Authors: Jakob Muhr & Frida-Maria Wallgren Advisor: Reda M. Moursli Keywords: Insider Trading, Board Gender Diversity, Corporate Governance, Asymmetric Information, Abnormal Returns Purpose: This study examines if gender diversity among the board of directors affects information disclosure and the profitability of insider trading. Furthermore, to fulfill the purpose aforementioned, we initially investigate whether or not insiders generate abnormal returns. Methodology: By means of a classic event study approach, we calculate abnormal returns for insider trades. Subsequently, we use various regression models to evaluate the relationship between board gender diversity and abnormal returns from insider trades. Theoretical Perspectives: We discuss insider trading and asymmetric information in the context of the market efficiency hypothesis and the signaling hypothesis. The agency theory, the social identity theory, and the theory of critical mass, among others, underpin the understanding of board gender diversity. Empirical Foundation: The empirical analysis is based on a sample of 5,671 buy and sell transactions covering 292 unique firms listed on the Nasdaq Stockholm between January 2017 and December 2019. Conclusion: Our empirical results suggest that insiders earn abnormal returns from their insider transactions. Moreover, we estimate the insignificant effects of board gender diversity on the profitability of insider trading.