Why Do U.S. CEOs Pledge Their Own Company's Stock?

68 Pages Posted: 14 Nov 2019 Last revised: 15 Nov 2019

See all articles by Kornelia Fabisik

Kornelia Fabisik

Frankfurt School of Finance & Management

Date Written: November 11, 2019

Abstract

Between 2007 and 2016, 7.6% of publicly listed U.S. firms disclosed that their CEOs had pledged company stock as collateral for a loan. On average, CEOs pledge 38% of their shares. The mean loan value is an economically sizeable $65 million. CEOs use the funds to either double down (6.0%), hedge their ownership (3.5%), or to obtain liquidity while maintaining ownership (90.5%). My event study results reveal that stock market participants view pledging as value-enhancing, but perceive significant pledging as value-destroying. Similarly, I find no evidence of its negative shareholder value consequences, except for CEOs who engage in significant pledging.

Keywords: CEO ownership, CEO incentives, pledging shares, margin loan

JEL Classification: G30, G32, G34

Suggested Citation

Fabisik, Kornelia, Why Do U.S. CEOs Pledge Their Own Company's Stock? (November 11, 2019). Swiss Finance Institute Research Paper 19-60, Available at SSRN: https://ssrn.com/abstract=3486231 or http://dx.doi.org/10.2139/ssrn.3486231

Kornelia Fabisik (Contact Author)

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

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