Asymmetric Information and Corporate Social Responsibility

Abstract:     
We investigate the relation between asymmetric information of insider trades and corporate social responsibility for US firms listed in the MSCI world index during the period 2004 to 2010. In comparison to current studies, which focus on measuring the interrelation between the cost of capital or firm value and corporate sustainability, our analysis entails the direct relationship between corporate sustainability and information asymmetry. We measure information asymmetry by the abnormal returns that occur when insiders trade in the stock of their firms. Hence, our investigation is based on a micro level and helps to explain the results at the more aggregated level of cost of capital, and at the fully aggregated level of firm value. In our cross-sectional analysis we found evidence that firms with a higher degree of corporate sustainability spend more efforts in reducing information asymmetries.

Number of Pages in PDF File: 20

Keywords: Asymmetric Information, Corporate Governance, Corporate Social Responsibility, Cross-Sectional Analysis, Event Study, Insider Trading

JEL Classification: D21, G14, G34

working papers series