Determinants of Board Members’ Intentions of Compliance and Ethical Behavior Regarding the Handling of Inside Information: Evidence from a Survey and Field Experiment

To effectively stimulate compliance, supervisory bodies need to understand which processes lead to non-compliance. The final responsibility for companies’ compliance lies with their board members. In this study, we applied Protection Motivation Theory to examine whether psychological processes play a role in board members’ decision making. We conducted a field experiment and a survey in 2021 among 78 board members of companies listed on Euronext Amsterdam. Specifically, we studied how board members’ threat appraisal (perceived vulnerability to and perceived impact of incorrect handling of inside information), coping appraisal (response efficacy of measures to reduce incorrect handling of inside information and self-efficacy to reduce incorrect handling of inside information), and knowledge of the relevant law relate to their motivation and intention to handle inside information correctly, in line with the letter and the spirit of the law. We found that higher response efficacy and self-efficacy were related to higher motivation to handle inside information correctly. Higher motivation, in turn, significantly predicted higher intention to comply and to behave ethically. Furthermore, we examined the effectiveness of a tool in promoting threat appraisal, coping appraisal, knowledge of the law, motivation, intention to comply, and intention to behave ethically. This tool was designed with the aim of helping board members actively engage with advice on the correct handling of information, in contrast to the more passive act of reading about best practices for handling inside information. We found almost no self-reported differences between the board members that received the tool and companies that only received a link to best practices. Contrary to what was expected, self-efficacy was higher amongst the board members who only received the best practices. We conclude that board members who find the correct handling of inside information important and feel responsible for this within their company (i.e. those who are motivated to handle inside information correctly) have higher intentions to comply and behave ethically. To increase board members’ motivation, supervisors should stimulate board members’ perception that there are effective actions (response efficacy) that they are able to take (self-efficacy) to reduce the risk of non-compliance occurring. Additionally, supervisors should stimulate board members’ perception of their own ability to comply. The current tool was not more effective at stimulating board members’ perceptions and intentions than the existing best practices.