Corporate Social Responsibility: “Sincerity” or “Veneer”? A Study Based on Executive Insider Trading
ZENG Aimin, WEI Zhihua, ZHANG Chun, ZUO Wanping
School of Accounting, Zhejiang Gongshang University; School of Economics, Xiamen University; Institute of Accounting and Finance, Shanghai University of Finance and Economics; Zhonghui Accounting Firm
Summary:
Both the sustainable development goals (SDG) issued by the United Nations and China's “13th Five-Year Plan” highlighted the importance of corporate social responsibility. Nonetheless, doubts about corporate social responsibility and even major negative incidents involving social responsibility efforts still occur from time to time. Therefore, many enterprises' social responsibility behaviors have been criticized as ineffective, hypocritical, or purely for show, and the legitimacy and rationality of corporate social responsibility have been seriously challenged. Many studies have examined this topic from the perspective of corporate investment, financing, and earnings management. The results show that corporate social responsibility (CSR) is a positive moral behavior accepted by stakeholders (e.g.Chen et al., 2018). However, some studies also find that Chinese enterprises engage in social responsibility activities primarily to cover up or divert public attention from their misconduct, and they argue that management engages in CSR out of self-interest (e.g.Gao et al., 2012). However, these studies mainly focus on the impacts of corporate social responsibility on corporate behaviors, and few explore how corporate social responsibility affects the individual behavior of executives. Clearly, whether CSR affects the individual behaviour of planners and promoters can indicate whether it is “sincerity” or “veneer.” This paper chooses A-share listed companies in China from 2008 to 2014 as a research sample to empirically examine the governance role of corporate social responsibility on the insider trading of senior executives, and it further explores the impact of corporate social responsibility on the insider trading of executives in different situations. This study finds the following: (1) Fulfilling corporate social responsibility has a significant governance effect on the scale and profitability of internal trading, and executives of CSR enterprises show stronger self-discipline in internal trading. (2) Evidence from the dual perspectives of the “information model” and “reputation model” indicate that in the context of opaque corporate information or executives with low personal reputation, corporate social responsibility plays a more significant role in restraining senior executives' insider trading. (3) When corporate information is opaque, corporate social responsibility plays a more significant role in restraining insider trading than in the case of executives with lower reputation. The results of this study have the following important implications. First, the evidence shows that enterprises should actively undertake social responsibility. When corporate information is opaque or the reputation of executives is lower, corporate social responsibility has a more significant governance effect on insider trading. Thus, this paper suggests that corporate social responsibility can best be understood from the perspective of sincerity, and it provides empirical evidence for promoting and encouraging corporate social responsibility. Second, from the perspective of the “information model”, regulatory authorities should guide, encourage, and standardize information disclosure on corporate social responsibility, and improve the related supervision and evaluation system. Therefore, in the future, regulators should focus on encouraging listed companies to disclose social responsibility and enhancing the incentives for voluntary disclosure. At the same time, regulators should standardize social responsibility disclosure and improve the authentication and evaluation system of corporate social responsibility information to better enhance its quality and transparency. Finally, from the perspective of the “reputation model,” enterprises should increase top management's ideological and ethical standards by engaging in social responsibility. In view of this, enterprises should actively utilize social responsibility activities to cultivate a good corporate culture, which will ultimately improve the moral standards of top management. Thus, both the information model and reputation model show that by effectively fulfilling social responsibility, corporations can restrain insider trading by executives, improve the efficiency of economic operations, and promote market fairness.
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