Managers’ Moral Obligation of Fairness to (All) Shareholders: Does Information Asymmetry Benefit Privileged Investors at Other Shareholders’ Expense?

Jocelyn D. Evans (), Elise Perrault () and Timothy A. Jones ()
Additional contact information
Jocelyn D. Evans: College of Charleston
Elise Perrault: College of Charleston
Timothy A. Jones: Xavier University

Journal of Business Ethics, 2017, vol. 140, issue 1, No 6, 96 pages

Abstract: Abstract Drawing on ethical principles of fairness and integrative social contracts theory, moral obligations of fair dealing exist between the firm and all shareholders. This study investigates empirically whether privileged investors of publicly traded firms engage in legal, but morally questionable, trading that at the expense of non-privileged institutional or atomistic investors. In this context, we define privilege as the access to material, nonpublic earnings surprise information. Our results show that the opportunity for procedural unfairness (e.g., the likelihood of an earnings surprise and information asymmetry) increases with the presence of privileged investors. However, this procedural unfairness does not appear to lead to distributive unfairness even though the level of abnormal trading also increases with the presence of privileged investors. That is, our findings suggest that other shareholders are in fact better off from an outcome perspective given that the abnormal stock price returns upon the announcement of an earnings surprise are either more positive (in response to a favorable surprise) or less negative (in the case of an unfavorable surprise) when the firm has a high proportion of privileged investors. We extract the important implications of our study for future research on the fairness of capital markets and information asymmetry amongst classes of investors, as well as for public policy.

Keywords: Fairness; Information asymmetry; Integrative social contracts theory (ISCT); Fiduciary duty; Earnings announcement; Moral obligation (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s10551-015-2685-2 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:jbuset:v:140:y:2017:i:1:d:10.1007_s10551-015-2685-2

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/10551/PS2

DOI: 10.1007/s10551-015-2685-2

Access Statistics for this article

Journal of Business Ethics is currently edited by Michelle Greenwood and R. Edward Freeman

More articles in Journal of Business Ethics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().