Insiders' personal stock donations from the lens of stakeholder, stewardship and agency theories

Abstract

This paper studies the relationship between personal stock donation by top executives and board of directors (insiders) of publicly traded corporations and their personal tax, shareholders' returns, and social responsibility. The study finds evidence that the timing of stock donations is driven by personal tax gain. The study further shows, comparing stock gift corporations relative to their non-stock gift cohorts, that personal stock gifts are associated with lower short-term and long-term stock returns to shareholders. This implies that stock donation driven by insiders' personal gain adversely affects shareholder wealth. However, the likelihood and intensity of insiders to make personal stock donation is reduced when firms have strong corporate social responsibility (CSR). Agency theory explains insiders' opportunistic behavior, stakeholder theory is also supported by evidence that stock donation is negatively related to CSR, and stewardship theory offers a different view to explain the rationale behind insiders' stock donation and shareholders' reactions to stock gifts.

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