Insider Trading In Relation to Cost of Capital, CSR and Ownership Structure in Pakistani Non-Financial Listed Companies

Abstract

This study empirically investigates the influence of CSR, Cost of Capital and Ownership Structure on Insider Trading, specifically in Pakistani Non-Financial Listed Companies. As per Securities Act, 2015; Insider trading is prohibited in Pakistan. Considering this prohibition, insider trading laws are not effectively enforced because of weak governance mechanism. Several cases of Insider Trading have been reported in Pakistan, so there was a need to have an insight about the subject. We have made theoretical contribution to the existing literature on Insider Trading, as Multi-theoretical study is not yet done in Pakistan on the subject. For this purpose, we have used two measurements of each variable. For CSR we have created a checklist of Social and Environmental responsibility of the firms selected and computed scores from it. For cost of capital we have used both cost of equity and cost of debt of the firm. For ownership structure we have used measurements of firms’ managerial and foreign shareholdings. For empirical analysis we have run OLS and GLS. The data of our study is Panel in nature, which we have collected from the period of 2013-2018 and of 49 Non-Financial Listed companies out of 417. Thomson Reuters DataStream and Firms’ Annual Reports are used for data collection. As per the findings, OLS showed significant results of Managerial Ownership Structure, Foreign Ownership Structure and Social Responsibility on Insider Trading. No significant impact of Environmental Responsibility, cost of equity and cost of debt on Insider Trading is observed. We have also used two control variables in our study i.e. firm size and firm age which also reflected the insignificant findings, showing no impact on Insider Trading.