We study insider trading in family firms and compare the profitability of insider purchases and sales of family insiders, i.e. insiders who are related to the founding family, to those of nonfamily insiders, i.e. insiders without such family ties. Probing a sample of 37,012 insider trades from 241 family firms, we find that family insiders generate higher abnormal returns compared to nonfamily insiders for insider purchases. For insider sales, transactions that imply significant litigation and reputational risks, the profitability is significantly lower for family insiders compared to nonfamily insiders. We also distinguish between family insiders who are actively involved in the firm and family insiders who are significant shareholders but not otherwise involved in the firm. The profitability of insider sales is significantly higher for family insiders without management involvement, who are thereby under less regulatory scrutiny, compared to insider sales by family insiders with an active management role.
