Do CSR ethics dominate weak shareholder protection? The case of corporate insider trading in Europe

Abstract

Corporate social responsibility (CSR) theoretically builds a positive brand for social and environmental commitment with ethical constraints imposed on corporate insider trading. We use a sample of ten European countries, clustered by French, German and Nordic sub-code law and U.K. common law to show high variability in the ethical influence of CSR components in constraining insider profitability. Moreover, in Continental Europe, the negative association between CSR commitment and insider profits, becomes significantly weaker when there is insufficient legislative protection afforded to minority shareholders. Results are robust to changes in CSR quality, trading around annual accounting reports, and when CSR commitment and insider control factors are adjusted. We reveal a complex intersection between innate predatory corporate trading, nurtured ethical governance and customised country legislative codes that provides a contrast to prior studies enacted under protective shareholder legislation in the U.S.