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The gift that keeps on giving: stock returns around CEO stock gifts to family members

Author

Listed:
  • Jennifer L. Brown

    (Arizona State University)

  • G. Ryan Huston

    (Texas Tech University)

  • Brian S. Wenzel

    (McGill University)

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 credibly signal future price performance, which market participants would benefit from knowing if the information were promptly disclosed.

Suggested Citation

  • Jennifer L. Brown & G. Ryan Huston & Brian S. Wenzel, 2024. "The gift that keeps on giving: stock returns around CEO stock gifts to family members," Review of Accounting Studies, Springer, vol. 29(2), pages 1904-1947, June.
    • Handle: RePEc:spr:reaccs:v:29:y:2024:i:2:d:10.1007_s11142-022-09732-x
    DOI: 10.1007/s11142-022-09732-x
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    More about this item

    Keywords

    Insider trading; Estate & gift taxes; Securities regulations; Family wealth;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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