Determinants and Trading Performance of Equity Deferrals by Corporate Outside Directors

Penn collection
Accounting Papers
Degree type
Discipline
Subject
outside directors
deferred compensation
insider trading
SEC Rule 10b-5 plans
Accounting
Business Administration, Management, and Operations
Funder
Grant number
License
Copyright date
Distributor
Related resources
Author
Franco, Francesca
Ittner, Christopher D
Urcan, Oktay
Contributor
Abstract

This study investigates the determinants and trading performance of outside directors’ equity deferrals, which represent the choice to convert part or all of their annual cash compensation into deferred company stock. Using a large sample of S&P 1500 firms that allowed directors to defer their cash fees into equity between 1999 and 2009, we find significant associations between equity deferral choices and specific features of the director compensation plans, proxies for directors’ outside wealth diversification, and future firm stock market performance. Trading performance analyses indicate that outside directors earn substantial abnormal returns from their deferrals, with a significant proportion of the deferral transactions occurring during blackout periods. These results are consistent with companies structuring director equity deferral plans to circumvent U.S. Securities and Exchange Commission Rule 10b-5’s trading restrictions.

Advisor
Date Range for Data Collection (Start Date)
Date Range for Data Collection (End Date)
Digital Object Identifier
Series name and number
Publication date
2016-03-01
Journal title
Management Science: Articles in Advance
Volume number
Issue number
Publisher
Publisher DOI
Journal Issue
Comments
Recommended citation
Collection