Insider Trading and CEO Pay-Gap Induced Turnover

Viet Le, Ann-Ngoc Nguyen (), Andros Gregoriou and William Forbes
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Viet Le: School of Economics, Finance, and Accounting, Coventry University, Coventry CV1 5DD, UK
Ann-Ngoc Nguyen: Department of Accounting, Finance, and Economics, Middlesex Business School, Middlesex University, London NW4 4BT, UK
Andros Gregoriou: Liverpool Business School, Liverpool John Moores University, Liverpool L3 5UG, UK
William Forbes: School of Business, University of Dundee, Nethergate, Dundee DD1 4HN, UK

JRFM, 2024, vol. 17, issue 11, 1-25

Abstract: We explore how insider trading returns, disparities in executive pay, and CEO turnover are interrelated. Our findings reveal both independent and interactive effects for insider trading returns, the CEO pay gap, and the likelihood of CEO turnover. First, an increase in abnormal returns from insider purchases lowers the probability of a CEO’s turnover, while an increase in abnormal returns from insider sales increases the likelihood of a CEO’s dismissal. Second, the CEO pay gap negatively affects the probability of CEO turnover for insider purchases, but it does not have a similar effect on insider sales. Third, the interaction between insider abnormal returns and any CEO pay disparity influences the impact of these returns on CEO turnover. Specifically, this interaction diminishes the positive effect of insider selling on the probability of a CEO’s dismissal, offsets the negative effect of insider purchasing on CEO dismissal, and, finally, amplifies the negative impact of CEO pay disparity on the probability of a CEO’s dismissal during periods witnessing insider purchases.

Keywords: insider abnormal returns; CEO pay-gap induced turnover; CEO entrenchment (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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