Independent Director Tenure and Corporate Governance: Evidence from Insider Trading

Abstract

Executives trade more profitably and opportunistically over the course of the tenure of independent directors (IDs). IDs' increased connections with and hence allegiance to executives are likely the channel through which ID tenure can affect executive trading. Executive opportunism is mitigated by disciplinary factors that include the presence of a firm's internal trading policy, blockholders, and IDs with legal expertise as well as the risk of shareholder-initiated derivative lawsuits. These results point to an association between long-tenured IDs and weakened corporate governance.