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Executive Equity Swaps and Corporate Insider Holdings

Author

Listed:
  • Paul Bolster
  • Don Chance
  • Don Rich

Abstract

Executive equity swaps have significant benefits for corporate insiders who wish to enhance their current income and maintain voting rights while reducing exposure to equity holdings in their firms. Since swaps do not require the sale of shares, capital gains taxes are delayed. Swaps, however, can reintroduce agency costs. Furthermore, they are very difficult to detect, though disclosure requirements have improved. We provide an examination of the hidden benefits and risks of executive equity swaps. We also discuss the pricing of these instruments and provide a mini-case analysis of the highly publicized Autotote equity swap.

Suggested Citation

  • Paul Bolster & Don Chance & Don Rich, 1996. "Executive Equity Swaps and Corporate Insider Holdings," Financial Management, Financial Management Association, vol. 25(2), Summer.
  • Handle: RePEc:fma:fmanag:bolster96
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    Cited by:

    1. Avdjiev, Stefan & Zeng, Zheng, 2009. "Impact of heterogeneous managerial productivity on executive hedge markets in an asymmetric information environment," Finance Research Letters, Elsevier, vol. 6(4), pages 187-201, December.
    2. Alberto Bisin & Piero Gottardi & Adriano A. Rampini, 2008. "Managerial Hedging and Portfolio Monitoring," Journal of the European Economic Association, MIT Press, vol. 6(1), pages 158-209, March.
    3. Lee Dunham & Ken Washer, 2012. "The Ethics of Hedging by Executives," Journal of Business Ethics, Springer, vol. 111(2), pages 157-164, December.
    4. Chakraborty, Atreya & Arnott, Richard, 2001. "Takeover Defenses and Dilution: A Welfare Analysis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 36(03), pages 311-334, September.
    5. Choe, Chongwoo & Lien, Donald & Yu, Chia-Feng (Jeffrey), 2015. "Optimal managerial hedging and contracting with self-esteem concerns," International Review of Economics & Finance, Elsevier, vol. 37(C), pages 354-367.
    6. Clifford G. Holderness & Randall S. Kroszner & Dennis P. Sheehan, 1998. "Were the Good Old Days That Good? Changes in Managerial Stock Ownership Since the Great Depression," NBER Working Papers 6550, National Bureau of Economic Research, Inc.
    7. Carr Bettis & John Bizjak & Swaminathan Kalpathy, 2015. "Why Do Insiders Hedge Their Ownership? An Empirical Examination," Financial Management, Financial Management Association International, vol. 44(3), pages 655-683, September.
    8. Fabel, Oliver & Kolmar, Martin, 2002. "Management takeover battles and the role of the golden handshake," Discussion Papers, Series I 319, University of Konstanz, Department of Economics.

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