Knowledge that Transforms

This study provides the first empirical evidence that directors' nationality significantly influences the profitability of insider trading. Using a large sample of reported stock transactions by directors of U.S.-listed firms between 1996 and 2023, I find that foreign directors earn statistically and economically lower abnormal returns following their trades compared to their domestic counterparts. The informational disadvantage of foreign directors appears only in firms with either a domestic CEO or CFO, lower board-level national diversity, when the directors work in overseas branches, and during the early stages of their tenure at the firm. These findings suggest that foreign directors face disadvantages in accessing private information due to the impact of national identity on information flow. I also find that this informational disadvantage only appears when foreign directors do not serve as top executives or independent directors and in firms with higher levels of information asymmetry. Further analysis suggests that the alternative explanation that foreign directors are less willing to trade on private information due to concerns about legal risks does not explain the findings. Additionally, I find that foreign directors' trades are less likely to be classified as opportunistic or to follow a clustered trading pattern, consistent with the finding that they exploit private information to a lesser extent. Moreover, I also find that trades by foreign directors trigger weaker market reactions compared to those executed by domestic directors. Finally, geographical distance and linguistic barriers are also found to influence foreign directors' ability to access and process information.

This study examines the impact of monitoring activities of beneficial investors toward asset managers. We use data from Japan, where the stewardship code requires beneficial investors, such as pension funds, to monitor the engagement of asset managers. We provide evidence that firms with asset managers who have endorsed the code are less likely to have anti-takeover provisions, especially after the code revision. Additional analyses clarify the causality by including ownership of non-signatory investors, a matching procedure, and an alternative definition of the ownership variable. We also confirm that the engagement also changes other corporate governance measurements of Japanese listed companies. Finally, we demonstrate that removing such provisions can improve operational and stock performance.

This paper introduces Sentiment Inequality (SI)—the difference in sentiment between high- and low-income consumers—and demonstrates its predictive power for firm performance, asset prices, and market trends. Using the restaurant industry as a case study, we show that changes in SI predict the relative performance of high-end firms (casual dining restaurants) versus low-end firms (fast-food chains). These findings extend beyond the restaurant sector, revealing that SI predicts the relative performance of high- versus low-end firms across the entire market. SI emerges as a critical proxy for business cycle fluctuations, providing incremental informational value over aggregate sentiment measures and established predictors.