Does Corporate Governance Quality Influence Private In-House Meeting Frequency and Insider Trading?

Abstract

We examine the effectiveness of corporate governance in monitoring private in-house meetings between management and investors. Consistent with better corporate governance curbing the opportunistic corporate disclosure and insider trading behavior, we find a negative association between governance quality and (i) private in-house meeting frequency, (ii) reduced insider trading frequency and value around private in-house meetings, and (iii) reduced insider trading profitability around these meetings. We document a potential channel that may explain these findings. Particularly, we find that firms with better corporate governance tend to reduce leakage of price-sensitive information during private in-house meetings, which limits the opportunity to make profitable insider trades. Our results are robust using instrumental variable and propensity score matching approaches to address endogeneity. We argue that improving corporate governance quality may be a partial substitute for costly government regulation designed to curb negative consequences of private in-house meetings.