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This paper investigates the market's reaction to U.K. insider transactions and analyzes whether the reaction depends on the firm's ownership. We present three major findings. First, differences in regulation between the U.K. and United States, in particular the speedier reporting of trades in the U.K., may explain the observed larger abnormal returns in the U.K. Second, ownership by directors and outside shareholders has an impact on the abnormal returns. Third, it is important to adjust for news released before directors' trades. In particular, trades preceded by news on mergers and acquisitions and CEO replacements contain significantly less information. Copyright 2006 by The American Finance Association.

In the corporate finance tradition starting with Berle & Means (1923), corporations should generally be run so as to maximize shareholder value. The agency view of corporate social responsibility (CSR) generally considers CSR as a managerial agency problem and a waste of corporate resources, since corporate insiders do good with other people's money. We evaluate this agency view using large-scale datasets with global coverage (59 countries) on firm-level corporate engagement and compliance with respect to environmental, social, and governance issues. Using an instrumental variable approach, we document that CSR ratings are higher for companies with fewer agency problems (using standard proxies such as having lower levels of free cash flow and higher dividend payout and leverage ratios). Moreover, certain aspects of CSR (e.g., environmental, labor and social protection) are associated with increased executive pay-for-performance sensitivity and the maximization of shareholder value."If the unity of the corporate body is real, then there is reality and not simply legal fiction in the proposition that the managers of the unit are fiduciaries for it and not merely for its individual members, that they are… trustees for an institution [with multiple constituents] rather than attorneys for the stockholders." E. Merrick Dodd, Jr. Harvard Law Review, 1932

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Using corporate social responsibility (CSR) ratings for 23,000 companies from 114 countries, we find that a firm's CSR rating and its country's legal origin are strongly correlated. Legal origin is a stronger explanation than "doing good by doing well" factors or firm and country characteristics (ownership concentration, political institutions, and globalization): firms from common law countries have lower CSR than companies from civil law countries, with Scandinavian civil law firms having the highest CSR ratings. Evidence from quasi-natural experiments such as scandals and natural disasters suggests that civil law firms are more responsive to CSR shocks than common law firms.THE CLASSICAL VIEW IN FINANCE on modern corporations takes a shareholder value maximization perspective, which holds that corporations are accountable only to profit-maximizing shareholders, and apart from their contractually determined obligations, have no responsibility to serve other stakeholders' interests or to enhance society's welfare (Friedman (1970), Bénabou and Tirole (2010)). In reality, however, corporations often focus on objectives beyond profit maximization and participate in activities that improve other * Hao Liang is from Singapore Management University. Luc Renneboog is from Tilburg University. We acknowledge that we are aware of the Journal of Finance's submission guidelines and policies and conflict of interest disclosure policy and that there are no conflicts of interest that exist for this paper. We are very grateful to Andrei Shleifer and Holger Spamann for comments and suggestions on early versions of the paper. We also wish to thank