Do Commonalities Facilitate Private Information Channels? Evidence from Common Gender and Insider Trading

We examine insider trading profitability and common identity between insiders and top executives. In particular, we argue that common gender and the resultant social connections it creates influence access to private information, where insiders benefit from greater information sharing with top executives of the same gender. Using a large sample of US firms between 1995 and 2016, we find higher (lower) insider trading profitability for female (male) insiders in the presence of a female CEO or CFO. We also study and find that, in isolation, other social and professional commonalities, such as common age, ethnicity, having attended the same university or having worked at the same firm also increase insider profitability, albeit to a lesser extent. Our evidence suggests that some of these commonalties, when cumulated, enhance the common gender effect. We examine formal interactions and find that attending meetings and serving on committees with top executives of the same gender enables private information sharing, consistent with common gender acting as an informational channel. We also document greater clustering of insiders’ trades around the trades made by common gender top executives. Our findings are consistent with flows of private information from CEOs and CFOs to less informed common gender insiders.