Manipulative Games of Gifts by Corporate Executives

Abstract

Executives use a variety of manipulative games to maximize the value of their gifts, including backdating, spring-loading, bullet-dodging and insider information. We find that executives exploit a legal loophole to backdate their gifts. Stock prices rise abnormally about 6% during the one-year period before the gift date and they fall abnormally by about 5% during the one year after the gift date. We find this pattern is stronger for late-reported gifts, which is consistent with the backdating hypothesis. We suggest policy recommendations that should improve the compliance of gifts with the requirements of anti-fraud provisions of federal securities laws.

Keywords: securities law, tax law, charitable donations, disclosure requirements, corporate law, empirical evidence, public policy

JEL Classification: K22, K34, K42, M14, E62, E61, G18, H21, H25, H26