Abstract
Using unique and proprietary daily trade data from qualified market participants, our study empirically investigates the impact of trading aggressiveness on firm performance and the moderating impact of equity-based compensation and block ownership. Based on a dataset including 3,775,646 daily trades by 35 qualified market participants for 414 New Zealand Exchange (NZX) listed firms over the period 1996–2011, we find that aggressive trading does not consistently improve firm performance across all trading measures and after addressing endogeneity concern. Our findings even hold among firms with CEO equity-based compensation and high level of block ownership. Our study challenges the crucial role of CEO equity-based pay and block ownership in the theory of “governance through trading”.
•Stock trading is a powerful governance mechanism.•Aggressive trading did not consistently improve firm performance in NZ setting.•CEO equity-based pay size plays a crucial role in “governance through trading” theory.•Blockholding level does not matter in “governance through trading” theory.•Both institutional and retail trading activities should be equally considered.