Board interlock networks and informed short sales

摘要

This study examines the association between informed short selling and a firm's position in the board interlock network formed by shared directors. We find that better-connected firms experience higher levels of informed short selling and that this association is driven by both eigenvector centrality (a measure that accounts for both thequantityandqualityof firms’ ties) and betweenness centrality (a measure of the extent to which firms serve as information intermediaries), not by degree centrality (a measure thatonlycounts the quantity of their ties) in interlock networks. In addition, the positive association between interlock centrality and informed trading is more pronounced for firms whose directors have more opportunities to interact with directors of external firms in the network, consistent with director information leakage serving as a plausible underlying channel. Our further tests do not support an alternative interpretation based on short sellers’ superior processing of public information. Our findings have policy implications for regulators and professional director associations.