Abstract

http://ssrn.com/abstract=1065893
 
 

References (22)



 
 

Citations (7)



 


 



An Analysis of Insiders' Use of Prepaid Variable Forward Transactions


Alan D. Jagolinzer


University of Colorado - Leeds School of Business

P. ERIC YEUNG


affiliation not provided to SSRN

STEVEN R. MATSUNAGA


affiliation not provided to SSRN

2007-04-22

Journal of Accounting Research, Vol. 45, Issue 5, pp. 1055-1079, December 2007

Abstract:     
This study examines firm performance surrounding insiders&apos' prepaid variable forward (PVF) transactions to infer insiders&apos' information when they enter these off-market contracts. PVFs allow insiders to hedge downside risk, share performance gains, and obtain immediate large-sum cash payments for investment or consumption. On average, PVF transactions cover 30% of a sample insider&apos's firm-specific wealth ($22 million), which is substantially larger than a typical open-market sale. PVFs systematically follow strong firm performance and precede degraded stock and earnings performance. PVFs also precede periods of negative abnormal returns relative to potential alternative investments. The documented association between PVFs and performance declines does not appear to result from the market&apos's response to transaction disclosure, participant self-selection, or general price reversals. Thus, evidence suggests that insiders use PVFs to diversify firm-specific holdings in anticipation of performance declines.

Number of Pages in PDF File: 25

Accepted Paper Series





Date posted: December 11, 2007  

Suggested Citation

Jagolinzer, Alan D. and YEUNG, P. ERIC and MATSUNAGA, STEVEN R., An Analysis of Insiders' Use of Prepaid Variable Forward Transactions (2007-04-22). Journal of Accounting Research, Vol. 45, Issue 5, pp. 1055-1079, December 2007. Available at SSRN: http://ssrn.com/abstract=1065893 or http://dx.doi.org/10.1111/j.1475-679X.2007.00260.x

Contact Information

Alan D. Jagolinzer (Contact Author)
University of Colorado - Leeds School of Business ( email )
419 UCB
Boulder, CO 80309-0419
United States
P. ERIC YEUNG
affiliation not provided to SSRN
STEVEN R. MATSUNAGA
affiliation not provided to SSRN
No Address Available
Feedback to SSRN


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References:  22
Citations:  7

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