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Abstract:
We investigate insider trading patterns around corporate environmental lawsuits. Using an event-specific econometric design, we find that insiders in firms facing environmental lawsuits sell more and larger volumes of shares in the weeks leading up to the filing of the lawsuits. This trading pattern is more prominent for top executives, lawsuits associated with ex-post severe negative market reactions, and firms operating in opaque information environments. Additional analysis suggests that a strong corporate culture based on integrity reduces this opportunistic insider behavior. Overall, our findings indicate that insiders use private information about upcoming environmental lawsuits to sell shares in advance, especially when such lawsuits have a material impact on stock prices.
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