Does corporate social responsibility play a moderating role in trading silence prior to bad news earnings announcements?

Abstract

We examine whether corporate social responsibility (CSR) plays a role in moderating trading silence prior to bad news earnings announcements. Unusually low trading volume before the public release of negative earnings information constrains price discovery. We find that unusually low trading volume prior to earnings announcements is less pronounced for firms with a high level of CSR activities. We also find that this effect is stronger before bad news earnings announcements than good news earnings announcements. These findings are robust to various alternative research design choices and to the endogeneity concern between CSR and trading activity. Taken together, our study demonstrates that CSR plays a moderating role in trading silence by improving firms’ pre-disclosure business and information environments.