IDEAS home Printed from https://ideas.repec.org/a/eee/jfinec/v94y2009i1p107-123.html
   My bibliography  Save this article

Deductio' ad absurdum: CEOs donating their own stock to their own family foundations

Author

Listed:
  • Yermack, David

Abstract

I study large charitable stock gifts by Chairmen and Chief Executive Officers (CEOs) of public companies. These gifts, which are not subject to insider trading law, often occur just before sharp declines in their companies' share prices. This timing is more pronounced when executives donate their own shares to their own family foundations. Evidence related to reporting delays and seasonal patterns suggests that some CEOs fraudulently backdate stock gifts to increase personal income tax benefits. CEOs' family foundations hold donated stock for long periods rather than diversifying, permitting CEOs to continue voting the shares.

Suggested Citation

  • Yermack, David, 2009. "Deductio' ad absurdum: CEOs donating their own stock to their own family foundations," Journal of Financial Economics, Elsevier, vol. 94(1), pages 107-123, October.
    • Handle: RePEc:eee:jfinec:v:94:y:2009:i:1:p:107-123
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0304-405X(09)00120-2
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Bettis, J. C. & Coles, J. L. & Lemmon, M. L., 2000. "Corporate policies restricting trading by insiders," Journal of Financial Economics, Elsevier, vol. 57(2), pages 191-220, August.
    2. Joel Slemrod, 2007. "Cheating Ourselves: The Economics of Tax Evasion," Journal of Economic Perspectives, American Economic Association, vol. 21(1), pages 25-48, Winter.
    3. Leslie A. Jeng & Andrew Metrick & Richard Zeckhauser, 2003. "Estimating the Returns to Insider Trading: A Performance-Evaluation Perspective," The Review of Economics and Statistics, MIT Press, vol. 85(2), pages 453-471, May.
    4. Erik Lie, 2005. "On the Timing of CEO Stock Option Awards," Management Science, INFORMS, vol. 51(5), pages 802-812, May.
    5. Feldstein, Martin S & Taylor, Amy, 1976. "The Income Tax and Charitable Contributions," Econometrica, Econometric Society, vol. 44(6), pages 1201-1222, November.
    6. O'Neil, Cherie J. & Steinberg, Richard S. & Thompson, G. Rodney, 1996. "Reassessing the Tax-Favored Status of the Charitable Deduction for Gifts of Appreciated Assets," National Tax Journal, National Tax Association;National Tax Journal, vol. 49(2), pages 215-233, June.
    7. Heron, Randall A. & Lie, Erik, 2007. "Does backdating explain the stock price pattern around executive stock option grants?," Journal of Financial Economics, Elsevier, vol. 83(2), pages 271-295, February.
    8. Harbaugh, William T, 1998. "The Prestige Motive for Making Charitable Transfers," American Economic Review, American Economic Association, vol. 88(2), pages 277-282, May.
    9. Slemrod, Joel, 1989. "Are Estimated Tax Elasticities Really Just Tax Evasion Elasticities? The Case of Charitable Contributions," The Review of Economics and Statistics, MIT Press, vol. 71(3), pages 517-522, August.
    10. Yermack, David, 1997. "Good Timing: CEO Stock Option Awards and Company News Announcements," Journal of Finance, American Finance Association, vol. 52(2), pages 449-476, June.
    11. O'Neil, Cherie J. & Steinberg, Richard S. & Thompson, G. Rodney, 1996. "Reassessing the Tax-Favored Status of the Charitable Deduction for Gifts of Appreciated Assets," National Tax Journal, National Tax Association, vol. 49(2), pages 215-33, June.
    12. Paul Gompers & Josh Lerner, 1998. "Venture Capital Distributions: Short-Run and Long-Run Reactions," Journal of Finance, American Finance Association, vol. 53(6), pages 2161-2183, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Baron David P & Agus Harjoto Maretno & Jo Hoje, 2011. "The Economics and Politics of Corporate Social Performance," Business and Politics, De Gruyter, vol. 13(2), pages 1-48, August.
    2. Weber, Stefan, 2014. "Der Einfluss von Steuern auf Corporate Social Responsibility-Instrumente: Dargestellt am Beispiel von Spenden," arqus Discussion Papers in Quantitative Tax Research 159, arqus - Arbeitskreis Quantitative Steuerlehre.
    3. Fack, Gabrielle & Landais, Camille, 2016. "The effect of tax enforcement on tax elasticities: Evidence from charitable contributions in France," Journal of Public Economics, Elsevier, vol. 133(C), pages 23-40.
    4. Beneish, Messod D. & Marshall, Cassandra D. & Yang, Jun, 2017. "Explaining CEO retention in misreporting firms," Journal of Financial Economics, Elsevier, vol. 123(3), pages 512-535.
    5. Anil Arya & Brian Mittendorf & Ram N. V. Ramanan, 2022. "Tax-Favored Stock Donations by Corporate Insiders and Consequences for Equity Markets," Management Science, INFORMS, vol. 68(11), pages 8506-8514, November.
    6. Hao Liang & Luc Renneboog, 2017. "Corporate donations and shareholder value," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 33(2), pages 278-316.
    7. Byungki Kim & Jinhan Pae & Choong-Yuel Yoo, 2019. "Business Groups and Tunneling: Evidence from Corporate Charitable Contributions by Korean Companies," Journal of Business Ethics, Springer, vol. 154(3), pages 643-666, February.
    8. Chen, Jie & Song, Wei & Goergen, Marc, 2019. "Passing the dividend baton: The impact of dividend policy on new CEOs' initial compensation," Journal of Corporate Finance, Elsevier, vol. 56(C), pages 458-481.
    9. Zhichuan Frank Li & Saurin Patel & Srikanth Ramani, 2021. "The Role of Mutual Funds in Corporate Social Responsibility," Journal of Business Ethics, Springer, vol. 174(3), pages 715-737, December.
    10. David Yermack, 2015. "Corporate Governance and Blockchains," NBER Working Papers 21802, National Bureau of Economic Research, Inc.
    11. Arthur Gautier & Anne-Claire Pache, 2015. "Research on Corporate Philanthropy: A Review and Assessment," Journal of Business Ethics, Springer, vol. 126(3), pages 343-369, February.
    12. David Yermack, 2017. "Corporate Governance and Blockchains," Review of Finance, European Finance Association, vol. 21(1), pages 7-31.
    13. Hanlon, Michelle & Heitzman, Shane, 2010. "A review of tax research," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 127-178, December.
    14. Fich, Eliezer M. & Parrino, Robert & Tran, Anh L., 2023. "When and how are rule 10b5-1 plans used for insider stock sales?," Journal of Financial Economics, Elsevier, vol. 149(1), pages 1-26.
    15. Focke, Florens & Maug, Ernst & Niessen-Ruenzi, Alexandra, 2017. "The impact of firm prestige on executive compensation," Journal of Financial Economics, Elsevier, vol. 123(2), pages 313-336.
    16. Yaowen Shan & Terry Walter, 2016. "Towards a Set of Design Principles for Executive Compensation Contracts," Abacus, Accounting Foundation, University of Sydney, vol. 52(4), pages 619-684, December.
    17. Marx, Benjamin M., 2015. "Has regulation of charitable foundations thrown the baby out with the bath water?," Journal of Public Economics, Elsevier, vol. 129(C), pages 63-76.
    18. Stacey Beaumont & Raluca Ratiu & David Reeb & Glenn Boyle & Philip Brown & Alexander Szimayer & Raymond Silva Rosa & David Hillier & Patrick McColgan & Athanasios Tsekeris & Bryan Howieson & Zoltan Ma, 2016. "Comments on Shan and Walter: ‘Towards a Set of Design Principles for Executive Compensation Contracts’," Abacus, Accounting Foundation, University of Sydney, vol. 52(4), pages 685-771, December.
    19. Fich, Eliezer M. & Cai, Jie & Tran, Anh L., 2011. "Stock option grants to target CEOs during private merger negotiations," Journal of Financial Economics, Elsevier, vol. 101(2), pages 413-430, August.
    20. Yost, Benjamin P. & Shu, Susan, 2022. "Does tax enforcement deter managers' self-dealing?," Journal of Accounting and Economics, Elsevier, vol. 74(1).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alan D. Jagolinzer, 2009. "SEC Rule 10b5-1 and Insiders' Strategic Trade," Management Science, INFORMS, vol. 55(2), pages 224-239, February.
    2. Peter Cziraki & Prof. Dr. Luc Renneboog & Peter de Goeij, 2010. "Insider Trading, Option Exercises and Private Benefits of Control," CERS-IE WORKING PAPERS 1006, Institute of Economics, Centre for Economic and Regional Studies.
    3. Martin Nienhaus, 2022. "Executive equity incentives and opportunistic manager behavior: new evidence from a quasi-natural experiment," Review of Accounting Studies, Springer, vol. 27(4), pages 1276-1318, December.
    4. Dhaliwal, Dan & Erickson, Merle & Heitzman, Shane, 2009. "Taxes and the backdating of stock option exercise dates," Journal of Accounting and Economics, Elsevier, vol. 47(1-2), pages 27-49, March.
    5. Ashiq Ali & Kelsey D. Wei & Yibin Zhou, 2011. "Insider Trading and Option Grant Timing in Response to Fire Sales (and Purchases) of Stocks by Mutual Funds," Journal of Accounting Research, Wiley Blackwell, vol. 49(3), pages 595-632, June.
    6. Francesca Franco & Christopher D. Ittner & Oktay Urcan, 2017. "Determinants and Trading Performance of Equity Deferrals by Corporate Outside Directors," Management Science, INFORMS, vol. 63(1), pages 114-138, January.
    7. Kevin F. Hallock & Craig A. Olson, 2010. "New Data for Answering Old Questions Regarding Employee Stock Options," NBER Chapters, in: Labor in the New Economy, pages 149-180, National Bureau of Economic Research, Inc.
    8. Dan Bernhardt & Steven Heston, 2010. "Point Shaving In College Basketball: A Cautionary Tale For Forensic Economics," Economic Inquiry, Western Economic Association International, vol. 48(1), pages 14-25, January.
    9. Brockman, Paul & Martin, Xiumin & Puckett, Andy, 2010. "Voluntary disclosures and the exercise of CEO stock options," Journal of Corporate Finance, Elsevier, vol. 16(1), pages 120-136, February.
    10. Carver, Brian T. & Cline, Brandon N. & Hoag, Matthew L., 2013. "Underperformance of founder-led firms: An examination of compensation contracting theories during the executive stock options backdating scandal," Journal of Corporate Finance, Elsevier, vol. 23(C), pages 294-310.
    11. Kyriacos Kyriacou & Kul B. Luintel & Bryan Mase, 2010. "Private Information in Executive Stock Option Trades: Evidence of Insider Trading in the UK," Economica, London School of Economics and Political Science, vol. 77(308), pages 751-774, October.
    12. Kyriacou, Kyriacos & Luintel, Kul B & Mase, Bryan, 2008. "Private Information in Executives' Option Trades: Evidence from the UK," Cardiff Economics Working Papers E2008/4, Cardiff University, Cardiff Business School, Economics Section.
    13. Wolfgang Bessler & Christoph Becker & Daniil Wagner, 2009. "The Design and Success of Stock Options Plans for New Economy Firms in Germany," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 12(4), pages 1-34, Spring.
    14. Bernile, Gennaro & Jarrell, Gregg A., 2009. "The impact of the options backdating scandal on shareholders," Journal of Accounting and Economics, Elsevier, vol. 47(1-2), pages 2-26, March.
    15. Heitzman, Shane, 2011. "Equity grants to target CEOs during deal negotiations," Journal of Financial Economics, Elsevier, vol. 102(2), pages 251-271.
    16. Blacconiere, Walter G. & Frederickson, James R. & Johnson, Marilyn F. & Lewis, Melissa F., 2011. "Are voluntary disclosures that disavow the reliability of mandated fair value information informative or opportunistic?," Journal of Accounting and Economics, Elsevier, vol. 52(2), pages 235-251.
    17. Goergen, Marc & Renneboog, Luc, 2011. "Managerial compensation," Journal of Corporate Finance, Elsevier, vol. 17(4), pages 1068-1077, September.
    18. Cziraki, P. & de Goeij, P. C. & Renneboog, L.D.R., 2010. "Insider Trading, Option Exercises and Private Benefits of Control (Revision of DP 2010-32)," Other publications TiSEM d77eb862-1191-40d2-b2e6-f, Tilburg University, School of Economics and Management.
    19. Bianchi, Giuliano, 2016. "Stock options: From backdating to spring loading," The Quarterly Review of Economics and Finance, Elsevier, vol. 59(C), pages 215-221.
    20. Biggerstaff, Lee & Cicero, David & Wintoki, M. Babajide, 2020. "Insider trading patterns," Journal of Corporate Finance, Elsevier, vol. 64(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jfinec:v:94:y:2009:i:1:p:107-123. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505576 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.