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

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