Events

Prof. Jun Yang
Conrad Prebys Professor of Finance
Chairperson of Finance
Director of the Institute for Corporate Governance
Kelley School of Business
Indiana University

We show that aligned trading–an observable outcome where independent directors and the CEO abnormally/opportunistically sell their firm’s shares in a given year—incrementally predicts the effectiveness of the board’s monitoring over the following year. While we show that aligned trading reflects information sharing, we find that aligned trading directors are less effective monitors: they are more likely to overpay the CEO and are less likely to dismiss the CEO following poor performance. A redefined board independence measure that encompasses co-option, social ties, and aligned trading better explains CEO compensation outcomes, with three or more such directors enhancing monitoring effectiveness.