The Gift That Keeps On Giving: Stock Returns Around CEO Stock Gifts to Family Members

Review of Accounting Studies, Forthcoming

56 Pages Posted: 29 Jun 2022

See all articles by Jennifer L. Brown

Jennifer L. Brown

Arizona State University (ASU) - W.P. Carey School of Business

George Ryan Huston

Texas Tech University - Area of Accounting

Brian Wenzel

McGill University - Desautels Faculty of Management

Date Written: June 23, 2022

Abstract

We examine an overlooked type of insider transaction—CEOs’ stock gifts to family members. CEOs should prefer to make family stock gifts at relative price minima, consistent with an estate and gift tax planning strategy called an estate freeze. We demonstrate that CEO freeze gifts generally follow temporary price suppressions and precede significant price appreciation, leading to substantial estate tax savings. Further, we find positive market returns one- and two-years following disclosure of freeze gifts. However, the market response to disclosure of these gifts is confounded by the delayed reporting regime for gifts. We demonstrate additional strategic behavior based on evidence of backdating, timing around earnings announcements, and subsequent sales of gifted shares preceding diminishing stock performance. Our findings suggest CEO family stock gifts provide a credible signal of future price performance, which market participants would benefit more from if promptly disclosed.

Keywords: insider trading, estate & gift taxes, securities regulations, family wealth

JEL Classification: G18, H24, G38, D31

Suggested Citation

Brown, Jennifer L. and Huston, George Ryan and Wenzel, Brian, The Gift That Keeps On Giving: Stock Returns Around CEO Stock Gifts to Family Members (June 23, 2022). Review of Accounting Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4144754

Jennifer L. Brown

Arizona State University (ASU) - W.P. Carey School of Business ( email )

Tempe, AZ 85287-3706
United States
(480)965-6618 (Phone)
(480) 965-8392 (Fax)

George Ryan Huston

Texas Tech University - Area of Accounting ( email )

P.O. Box 42101
Lubbock, TX 79409
United States

Brian Wenzel (Contact Author)

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada

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