Do female board directors deter private information trading? : evidence from the U.S. market

Abstract

Based on gender socialization theory, this study provides empirical evidence on the association between female board representation and opportunistic insider trading. More specifically, the study argues that female directors’ morality and risk-aversion traits set the tone at the top that deters insiders from trading on private information. The study found that female board representation on a company’s board has a negative and statistically significant impact on opportunistic insider trading. The main finding is robust to heterogeneity concerns, selection bias, alternative measures, alternative model specifications, reverse causality, and omitted variable bias. The study also employed difference-in-differences (DiD) and advanced machine learning approach to confirm the causality argument that female board representation is a significant predictor of opportunistic insider trading. The study also found that the negative effect of female board representation on opportunistic insider trading becomes less important in firms with strong governance and high managerial risk aversion, which suggests that female board representation substitutes the role of governance and risk aversion mechanisms in a firm.