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

The growing presence of outside directors (OD) on boards underscores the presumption of natural alignment of OD and shareholder interests despite inconclusive evidence on this issue. This paper more directly addresses the issue of 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 of insiders in anticipation of the offering, initially suggesting misalignment. However, the degree of misalignment differs by type of offering firm. In particular, NASDAQ offering firms 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 surrounding the offering process. These results suggest that presumptions of increasing OD involvement as value enhancing are more supported for NASDAQ firms than for NYSE/AMEX offering firms.