Insider Giving

71 Duke Law Journal (Forthcoming 2021)

UCLA School of Law, Law-Econ Research Paper No. 21-02

50 Pages Posted: 2 Mar 2021 Last revised: 13 May 2021

See all articles by Sureyya Burcu Avci

Sureyya Burcu Avci

Sabanci University School of Business

Cindy A. Schipani

University of Michigan, Stephen M. Ross School of Business

H. Nejat Seyhun

University of Michigan, Stephen M. Ross School of Business

Andrew Verstein

University of California, Los Angeles (UCLA) - School of Law

Date Written: February 25, 2021

Abstract

Corporate insiders can avoid losses if they dispose of their stock while in possession of material, non-public information. One means of disposal, selling the stock, is illegal and subject to prompt mandatory reporting. A second strategy is almost as effective and it faces lax reporting requirements and enforcement. That second method is to donate the stock to a charity and take a charitable tax deduction at the inflated stock price. “Insider giving” is a potent substitute for insider trading. We show that insider giving is far more widespread than previously believed. In particular, we show that it is not limited to officers and directors. Large investors appear to regularly receive material non-public information and use it to avoid losses. Using a vast dataset of essentially all transactions in public company stock since 1986, we find consistent and economically significant evidence that these shareholders’ impeccable timing likely reflects information leakage. We also document substantial evidence of backdating – investors falsifying the date of their gift to capture a larger tax break. We show why lax reporting and enforcement encourage insider giving, explain why insider giving represents a policy failure, and highlight the theoretical implications of these findings to broader corporate, securities, and tax debates.

Keywords: Insider Trading, insider giving, SEC regulations, shareholder stock gifts, manipulative giving, inflated stock prices, fraudulent transaction recordings, information leakage

Suggested Citation

Avci, Sureyya Burcu and Schipani, Cindy A. and Seyhun, H. Nejat and Verstein, Andrew, Insider Giving (February 25, 2021). 71 Duke Law Journal (Forthcoming 2021), UCLA School of Law, Law-Econ Research Paper No. 21-02, Available at SSRN: https://ssrn.com/abstract=3795537

Sureyya Burcu Avci

Sabanci University School of Business ( email )

School of Management
Orhanli Tuzla
İstanbul, 34956
Turkey

Cindy A. Schipani (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI 48109
United States
(734) 763-2257 (Phone)
(734) 763-2257 (Fax)

H. Nejat Seyhun

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-763-5463 (Phone)

Andrew Verstein

University of California, Los Angeles (UCLA) - School of Law ( email )

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