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.
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We appreciate helpful comments and suggestions from Joe Piotroski (referee and discussant), Karthik Ramanna, Min Shen, Pervin Shroff, Dino Silveri, Holly Skaife, Kumar Visvanathan, Ross Watts (editor), Joe Weber, Mike Willenborg, Fei Xie, Jerry Zimmerman, and participants at the HBS/JAE Conference on Corporate Accountability Reporting and the 2013 AAA FARS Midyear Meeting. We also benefited from valuable input from Ryan Casey, Helen Edem, Shunlan Fang, Brent Lao, Jonathan Lisic, Pawel Szeliski, Yenny Wong, and Yidan Xu. We gratefully acknowledge the financial support provided by College of Business at the University of Illinois at Chicago (Gao), School of Management at George Mason University (Lisic), and Carlson School of Management at the University of Minnesota (Zhang).
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- Corporate social responsibility
- Insider trading