The way a CEO trades their own company stock is the most accurate way to measure how well they talk to their board.
April 26, 2026
Original Paper
Informing Independent Directors
SSRN · 6637938
The Takeaway
Opportunistic trading patterns by leadership serve as a clear proxy for the flow of private information within a firm. Most people view insider trading as a purely legal problem or a sign of corruption. This research shows that these trades provide a reliable signal of internal communication health. When information flows well, the trading patterns of directors and CEOs become synchronized. Monitoring these movements gives an outside observer a direct window into the hidden social dynamics of a boardroom.
From the abstract
The extent to which independent directors are informed is unobservable. Assessing director informedness is also difficult because CEOs control the flow of private information to independent directors and the information CEOs transfer could be biased depending on their career incentives. We propose a new, observable measure of directors' informedness, arguing that contemporaneous opportunistic trading by CEOs and independent directors indicates that CEOs share private information, and that, as CE