Independent and Informed. An analysis of how informed Swedish independent directors are

Abstract

This paper examines how informed independent directors are about the company they serve as a director of. By examining purchases in the firm’s stock reported to the Swedish financial supervision authority we find that independent directors do not earn lower returns than CEO:s and dependent directors. Thus we interpret that Swedish independent directors are sufficiently informed about the company to monitor its executives. This is contrary to earlier literature in the area. A potential explanation for our result is that Swedish CEO:s might share more information with the board of directors since Sweden have a more collectivistic culture than the United States, where the previous study on the topic was conducted. Another possible explanation to our result is that our sample suffers from a selection bias. Due to a loophole in the Swedish insider trading regulation insiders are not obliged to report their trading in an endowment.