Do Insiders Trade on (Private) Corporate Social Responsibility Information?

• In Event: Financial Accounting and Reporting: Corporate Social Responsiblity & Disclosures

Abstract

Corporate insiders are typically aware of material corporate social responsibility (CSR) information prior to the general public. We examine whether corporate insiders exploit this CSR information advantage and trade based on private CSR information. We focus our analysis on insider trading around the publication date of the CSR report (‘CSR report date’). We find a significant increase in insider trading activity in a short window around the CSR report date; that executives are more likely to trade based on private CSR information before the CSR report date and supervisory board members do not; that affiliated persons are more likely to trade based on CSR information shortly after the CSR report date. We find that the materiality of CSR information significantly matters, as well as the insider’s proximity to CSR information (e.g., via CSR committees) and whether the firm operates in a CSR sensitive industry. We find no evidence of a CSR performance effect or regulatory anticipation effect of the new EU mandate on CSR reporting on insider trading. We run a battery of falsification tests, e.g., placebo tests and tests related to general market reactions or other information releases (e.g., ad hoc announcements) around the CSR report date.

Authors

• Janine Maniora, Heinrich Heine University Düsseldorf

• Nadine Georgiou, Technische Universität Dortmund