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Purpose This study aims to investigate the effect of local religious norms (i.e. local religiosity) on opportunistic insider trading at the firm level within the USA. This study also examines whether the importance of local religious norms in reducing opportunistic insider trading varies based on firm characteristics: corporate governance strength and managerial risk aversion. Design/methodology/approach This study uses a Tobit model to investigate the research questions. To address heterogeneity concerns, self-selection bias, reverse causality bias and omitted variable bias, this study uses propensity score matching, entropy balancing, change analysis around firm-headquarter location change years, instrumental variable regressions and advanced machine learning techniques. Findings This study finds a significant negative association between local religiosity and opportunistic insider trading, corroborating predictions rooted in organizational psychology and social norms theories. Furthermore, the research finds that the negative effect of religious norms on opportunistic insider trading is less pronounced in firms with strong internal governance and high managerial risk aversion, which suggests that local religiosity becomes less important in certain situations. Originality/value The significance of this study arises from contemporary research in social norms and business ethics, which underscores the impact of social factors on firms’ tendency to benefit from private information trading. This study concludes that local religiosity functions as a compensatory control mechanism, moderating the effect of insiders’ rent extraction and risk-seeking motives on opportunistic insider trading. Additionally, this study uses an advanced machine learning approach to substantiate the significance of local religiosity as a predictor of opportunistic insider trading.
Reza et al. (Tue,) studied this question.