Insider Trading in Connected Firms during Trading Bans

Insiders are subjected to trading bans or close periods before earnings announcements. Directors with multiple board seats can still trade in their other firms not subject to close periods. When a close period restricts insider trading, directors leverage insider information about that firm to trade in their other firms. This is supported by positive correlations between stock market reactions in close and traded firms, which are moderated by the type of firm relationships and institutional investor presence. This newly documented informational advantage, may encourage policymakers to apply the close period to all firms where a director holds board seats.