Insider Trading Regulation, Blockholder Exit, and Governance Roles

Blockholders are often portrayed as the steady hands of corporate governance. Yet some take board seats while others remain at arm’s length. Why? A formal governance role gives a blockholder a seat at the table, access to firm-specific information, and influence over major decisions. But the same access can make trading more difficult when liquidity is valuable. The choice is therefore not simply whether to engage in governance, but whether to take a formal role that comes with information-based constraints.

This trade-off is at the heart of our study, Insider Trading Regulation, Blockholder Exit, and Governance Roles, presented at the Corporate Governance Academic Forum. We ask: do liquidity concerns discourage blockholders from taking formal governance roles?

This matters because direct shareholder participation is often treated as an unambiguously valuable source of monitoring. Large owners can influence strategy, leadership, and oversight. But blockholders do not supply that governance automatically. Whether they take a formal role depends on the private costs of engagement as well as its potential benefits.

Board representation is the dominant formal, insider-intensive role available to blockholders in most systems. Sweden offers a rare contrast. Alongside board seats, large shareholders can serve on nomination committees, which prepare proposals for directors and auditors without conferring the same insider status. This creates two formal channels of shareholder influence that differ sharply in information access and trading-related constraints.

This comparison is important for examining blockholders’ responses. A broad fall in governance engagement should appear in both roles. A response concentrated in board representation, by contrast, points to the cost of accepting an insider-intensive position rather than to a general loss of interest in shareholder voice.

This distinction became especially revealing after the 2016 application of the EU’s Market Abuse Regulation. MAR expanded insider-related reporting and documentation requirements and strengthened the regulatory framework around transactions by people with managerial responsibilities. We use this change as a shock that raised the cost of holding an information-intensive governance role.

We follow blockholders in Swedish listed firms from 2011 to 2020. Our measure of ownership duration captures how an investor built its position over time, not merely its stake today. Investors with shorter duration have accumulated or adjusted their positions more recently and are likely to value trading flexibility more highly. We compare the governance participation of the three largest short- and long-duration blockholders before and after MAR.

We find a clear pattern with this design. After MAR, short-duration blockholders became 7.2 percentage points less likely to hold board seats than long-duration blockholders. This is substantial: board representation averages about 7% among blockholders in our sample. When the cost of becoming an insider rises, liquidity-sensitive investors become markedly less willing to provide board-level governance. The response is also visible in departures. Among blockholders already represented on the board, short-duration investors became 16 to 20 percentage points more likely to leave after MAR than their long-duration counterparts. These departures do not simply reflect shareholders selling their stakes and leaving the firm. Many remain blockholders while relinquishing the governance role. The adjustment is therefore about participation, not merely ownership.

Just as important is what does not happen. We find no comparable differential decline in nomination-committee participation. This does not establish one-for-one substitution between the two roles. But it is consistent with the proposed mechanism: the response is concentrated in the more information-intensive role, where insider obligations create the larger liquidity cost.

The findings do not imply that market-abuse rules are misguided. Market integrity and investor protection remain essential. But regulation should not be assessed only through its direct effect on trading and disclosure. It can also change who is willing to become an insider and, in turn, who supplies direct shareholder voice.

The broader lesson is straightforward: taking formal governance roles imposes a material liquidity cost on blockholders. Understanding corporate governance requires looking not only at who owns firms and who exercises governance, but also at which owners can afford to sit at the table.

Mengyu Yang is a PhD candidate in Finance at the Stockholm School of Economics.

Hongyi Xu is a Finance PhD student at the Stockholm School of Economics.

This blog is based on a paper presented at the Corporate Governance Academic Forum at the University of Toronto with ECGI, held on 2 October 2026. Visit the event page to explore more conference-related blogs.

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