Commitment to Social Good and Insider Trading

Abstract

A firm’s investment in corporate social responsibility (CSR) builds a positive image of caring for social good and imposes additional costs on executives’ informed trading, which is widely perceived self-serving. We thus expect executives of CSR-conscious firms to be more likely to refrain from informed trading. We find that executives of CSR-conscious firms profit significantly less from insider trades and are less likely to trade prior to future news than executives of non-CSR-conscious firms. The negative association between CSR and insider trading profits is more pronounced when executives’ personal interests are more aligned with the interests of the firm.

Keywords: corporate social responsibility, insider trading

JEL Classification: M14, G10