Study Shows Stock Gifts by Corporate Insiders Precede Price Declines

Study Shows Stock Gifts by Corporate Insiders Precede Price Declines

Article posted in Publicly Traded Securities on 6 March 2008| comments
audience: National Publication | last updated: 18 May 2011
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Summary

According to a study by New York University - Stern School of Business finance professor David L. Yermack, corporate CEOs may be taking advantage of inside information to maximize charitable deductions for company stock transferred to their own private foundations. In "Deduction Ad Absurdum: CEOs Donating Their Own Stock to Their Own Family Foundations", Dr. Yermack studies 151 charitable gifts of at least $1 million noting that such gifts, which are not subject to strict insider trading rules, are often followed by sharp declines in the price of the donated stock. He even suggests CEOs may be backdating their gifts in a way similar to recent stock option backdating practices in collusion with the charitable donee and others in order to increase their personal deductions.

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Dr. Yermack will be submitting his paper for review by one of the academic journals in his field for consideration of publication. Therefore, for copyright reasons, we are unable to publish it directly on the PGDC.

As an alternative, Dr. Yermack has graciously granted us permission to provide a link to the Social Science Research Network where the paper is available for downloading in PDF format:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1096257

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