| Abstract: | Most corporate governance research focuses on the behavior of chief executive officers, board members, institutional shareholders, and other similar parties. Little research focuses on the impact of executives whose primary responsibility is to enforce and shape corporate governance inside the firm. This study examines the role of the general counsel (GC) in mitigating informed trading by corporate insiders. We find that insider trading profits and the predictive ability of insider trades for future operating performance are generally higher when insiders trade within firm‐imposed restricted trade windows. However, when GC approval is required to execute a trade, insiders’ trading profits and the predictive ability of insider trades for future operating performance are substantively lower. Thus, when given the authority, it appears the GC can effectively limit the extent to which corporate insiders use their private information to extract rents from shareholders. |
