When Do Executives Actually Sell Vested Restricted Equity?

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.