Insider trading and family firms

Abstract

We find that CEOs of S&P 1500 family firms, founding CEOs in particular, are more active stock traders than are the CEOs of non-family firms. Importantly, the stock trades made by founding CEOs (and, to a lesser extent, those made by founders’ descendants) are more profitable than those made by the CEOs of non-family firms. This finding is more pronounced for family firms that are difficult to value or that have poor corporate governance. Founding CEOs’ excess stock trading returns arise both from trades made before earnings surprises and those made outside earnings announcement periods. Finally, founding CEOs’ trades forecast their company’s future stock returns better than those made by the CEOs of non-family firms.