Determinants and Trading Performance of Equity Deferrals by Corporate Outside Directors

Forthcoming, Management Science

Posted: 26 Aug 2015 Last revised: 26 Oct 2015

See all articles by Francesca Franco

Francesca Franco

London Business School

Christopher D. Ittner

University of Pennsylvania - Accounting Department

Oktay Urcan

University of Illinois at Urbana-Champaign

Multiple version iconThere are 2 versions of this paper

Date Written: August 20, 2015

Abstract

This study investigates the determinants and trading performance of outside directors’ equity deferrals, which represent the choice to convert part or all of their annual cash compensation into deferred company stock. Using a large sample of S&P1500 firms that allowed directors to defer their cash fees into equity between 1999 and 2009, we find significant associations between equity deferral choices and specific features of the director compensation plans, proxies for directors’ outside wealth diversification, and future firm stock market performance. Trading performance analyses indicate that outside directors earn substantial abnormal returns from their deferrals, with a significant proportion of the deferral transactions occurring during blackout periods. These results are consistent with companies structuring director equity deferral plans to circumvent SEC Rule 10b-5’s trading restrictions.

Keywords: outside directors; deferred compensation; insider trading; SEC Rule 10b-5 plans

JEL Classification: J33, D84

Suggested Citation

Franco, Francesca and Ittner, Christopher D. and Urcan, Oktay, Determinants and Trading Performance of Equity Deferrals by Corporate Outside Directors (August 20, 2015). Forthcoming, Management Science. Available at SSRN: https://ssrn.com/abstract=2650102

Francesca Franco

London Business School ( email )

Sussex Place
Regent's Park
London, NW1 4SA
United Kingdom

Christopher D. Ittner

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-7786 (Phone)
215-573-2054 (Fax)

Oktay Urcan (Contact Author)

University of Illinois at Urbana-Champaign ( email )

515 E. Gregory Drive
4009 BIF MC-520
Champaign, IL 61820
United States
217-265-0383 (Phone)
217-244-0902 (Fax)

HOME PAGE: http://business.illinois.edu/profile/oktay-urcan/

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