Common institutional ownership and opportunistic insider selling: Evidence from China

Abstract

We examine the relationship between common institutional ownership and opportunistic insider selling. Using an unbalanced panel of 32,858 firm-year observations of Chinese A-share listed firms from 2007 to 2021, we find that common institutional ownership inhibits opportunistic insider selling, supporting the synergistic governance view. Our evidence indicates that information economies of scale and industry power acquired from shareholding networks enable common owners to exert positive governance effects. Designating directors and officers, voting at shareholders' meetings, and promoting information disclosure are the three essential channels through which common owners perform effective monitoring. Furthermore, the synergistic governance effect is more pronounced in firms with headquarters located in regions with a stronger altruistic culture, better independent director governance, and wider media coverage. Heterogeneity analyses show that non-pressure-sensitive, stable, and transactional common institutional investors effectively inhibit opportunistic insider selling, whereas pressure-sensitive common owners exhibit attenuated effects. Additional tests indicate that common owners significantly reduce the profitability of opportunistic insider trading. Our findings highlight the social attributes and ethical aspects of how common institutional shareholders restricts insider opportunism in emerging markets.