ON OUTSIDE DIRECTOR TRADING BEHAVIOR AROUND SEASONED EQUITY OFFERINGS: AN EXTENSION

Abstract

The growing presence o f outside directors (OD) on boards underscores the presumption o f natural alignment of OD and shareholder interests despite inconclusive evidence on this issue. This paper more directly addresses the issue o f OD effectiveness through focusing upon the impact that OD have on insider trading activity surrounding an event widely associated with declining shareholder wealth - the seasoned equity offering (SEO). The evidence shows that OD increase net selling activity more dramatically than any other class o f insiders in anticipation o f the offering, initially suggesting misalignment. However, the degree ofmisalignment differs by type ofofferingfirm. In particular, NASDAQ offeringfirms are associated with a negative relationship between OD board concentration levels and insider pre-offering net selling activity as well as a relatively significant reduction in insider trading activity over the six and twelve months surroundingtheofferingprocess. TheseresultssuggestthatpresumptionsofincreasingODinvolvementas value enhancing are more supportedfor NASDAQ firms than for NYSEIAMEX offeringfirms.