Tax-Favored Stock Donations by Corporate Insiders and Consequences for Equity Markets

• 成果类型: Article
• 署名作者: Arya, Anil; Mittendorf, Brian; Ramanan, Ram N., V
• 署名单位: University System of Ohio; Ohio State University; State University of New York (SUNY) System; Binghamton University, SUNY
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2022.4514
• 发表日期: 2022
• 页码: 8506-8514
• 关键词: insider giving; equity market; Tax policy

摘要

Although corporate insiders face substantial restrictions on stock sales, securing tax deductions through charitable donations of stock is viewed as an attractive alternative. Recent press coverage and growing empirical evidence confirm that insider donations occur frequently and often precede stock price drops. Securities regulators have also taken note, with a recent push for new rules to require rapid disclosure as with insider trades. This paper develops a model of informed stock trading when disposal of stock by insiders takes the form of tax-favored charitable donations rather than direct trading. We demonstrate that charitable gifts by insiders can reflect nonpublic information about firm value and that they do so in a manner that promotes greater market efficiency. Relative to informed trading, insider donations yield greater market liquidity, more efficient equity prices, and superior investor protection. The results suggest that although insider donations deserve scrutiny, they are not equivalent to insider trades. The results also provide a general framework to examine implications of insider donations for tax policy governing philanthropic behavior.