Say on Pay Laws and Insider Trading
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ECGI New Working Paper Alert
ECGI Finance Series 792/2021
Tuesday 19 October 2021
Say on Pay Laws and Insider Trading

Thomas Bourveau, Columbia University
Francois Brochet, Boston University
Fabrizio Ferri, University of Miami and ECGI
Chengzhu Sun, The Hong Kong Polytechnic University 


Say On Pay • Insider Trading • Executive Compensation • Shareholder Voting
• Shareholder Activism • Corporate Governance • Regulation

We examine whether mandatory adoption of say-on-pay increases executives’ incentives to engage in insider trading to offset the regulatory-induced increase in compensation risk. Our empirical design exploits the staggered adoption of say-on-pay laws across fourteen countries over the 2000-2015 period. We find that mandatory adoption of say-on-pay is associated with a material increase in insider trading profitability, especially in firms with excess pay and weaker governance.

The increase in insider trading profits is mostly driven by more frequent and larger insider sales, consistent with executives’ desire to reduce their exposure to firm-specific risk and rebalance their portfolios. We also find some evidence that after the adoption of say-on-pay insider sales become more predictive of future returns and are more likely timed during information-sensitive windows. Overall, our results highlight the importance of considering potential effects on insider trading incentives when designing compensation reforms and when assessing their impact on executives’ incentives.
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Professor Fabrizio Ferri ECGI Profile
Professor of Financial and Managerial Accounting
University of Miami

The ECGI is an international scientific non-profit association providing a forum for debate and dialogue between academics, legislators and practitioners, focusing on major corporate governance issues. 
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