Timing Stock Trades for Personal Gain: Private Information and Sales of Shares by CEOs

47 Pages Posted: 17 Mar 2015 Last revised: 11 Jul 2015

See all articles by Eliezer M. Fich

Eliezer M. Fich

Drexel University - Department of Finance

Robert Parrino

University of Texas at Austin - Department of Finance

Anh L. Tran

Cass Business School, City University London

Date Written: July 10, 2015

Abstract

We investigate the determinants of gains to CEOs from large stock sales. Consistent with the literature, we find that some CEOs benefit from inside information by strategically timing sales. We also find that internal accounting information can be used to predict such timing. Furthermore, sales executed under plans that conform to SEC Rule 10b5-1 tend to follow positive abnormal stock returns, but do not, on average, precede abnormal declines. In contrast, sales that do not conform to the requirements of Rule 10b5-1 tend to follow smaller positive abnormal stock returns, but, on average, precede large abnormal declines. Board and CEO characteristics are related to the magnitude of the post-transaction abnormal returns. Overall, the evidence suggests that Rule 10b5-1 plans do not prevent CEOs from timing large sales or the release of discretionary information around them.

Keywords: CEO stock sales, 10b5-1 plan, insider trading, governance

JEL Classification: G34

Suggested Citation

Fich, Eliezer M. and Parrino, Robert and Tran, Anh L., Timing Stock Trades for Personal Gain: Private Information and Sales of Shares by CEOs (July 10, 2015). Available at SSRN: https://ssrn.com/abstract=2579047 or http://dx.doi.org/10.2139/ssrn.2579047

Eliezer M. Fich

Drexel University - Department of Finance ( email )

LeBow College of Business
3220 Market Street – 11th Floor
Philadelphia, PA 19104
(215) 895-2304 (Phone)

Robert Parrino (Contact Author)

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-471-5788 (Phone)
512-471-5073 (Fax)

Anh L. Tran

Cass Business School, City University London ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44-207-040-5109 (Phone)
+44-207-040-8881 (Fax)

HOME PAGE: http://https://www.cass.city.ac.uk/faculties-and-research/experts/anh-tran

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