When Do Executives Actually Sell Vested Restricted Equity?

48 Pages Posted: 17 Oct 2017 Last revised: 1 Aug 2019

See all articles by Erik Johannesson

Erik Johannesson

City University of NY, Baruch College, Zicklin School of Business

Seil Kim

Baruch College, City University of New York

Date Written: July 30, 2019

Abstract

We examine when and why executives retain vested restricted stock. A growing literature uses equity vesting events as a predictor of insider selling and, by extension, managerial myopia. Excluding mechanical tax withholdings, however, we find that executives do not sell vested restricted equity immediately but gradually over time. By retaining vested restricted stock, insiders realize annualized abnormal returns of 5.0-6.3%. Abnormal returns are higher for insiders who use discretion in paying taxes associated with the vested shares, in firms with a poor information environment, and for insiders who retain shares over the subsequent earnings announcement, consistent with an informed holding explanation.

Suggested Citation

Johannesson, Erik and Kim, Seil, When Do Executives Actually Sell Vested Restricted Equity? (July 30, 2019). Columbia Business School Research Paper No. 17-101; Baruch College Zicklin School of Business Research Paper No. 2018-10-05. Available at SSRN: https://ssrn.com/abstract=3054071 or http://dx.doi.org/10.2139/ssrn.3054071

Erik Johannesson

City University of NY, Baruch College, Zicklin School of Business ( email )

One Bernard Baruch Way
New York, NY 10010
United States

Seil Kim (Contact Author)

Baruch College, City University of New York ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States

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