| The returns to spring-loading. Abnormal returns following public disclosures of unscheduled grants to CEOs are positive and highly significant in the post Sarbanes Oxley period. This implies widespread spring-loading (awarding options ahead of good news releases). Between September 2002 and March 2006, a trading strategy that buys stocks after news of unscheduled option grants to CEOs become public earns 1.1% monthly abnormal returns, implying the market did not realize that grants were spring-loaded. After March 2006, when it was no longer possible to spring-load grants in a clandestine fashion, this practice stopped. This suggests spring-loading was a means of providing secret compensation rather than prudent pay practice.;Are pre-planned insider sales strategically timed? Previous research and numerous media articles suggest that sales executed under 10b5-1 trading plans are strategically timed. However, we find no significant difference in stock price performance following plan sales and non-plan sales. We demonstrate that price-contingent orders (e.g. limit orders), a common feature in trading plans, give rise to empirical patterns that have been taken as evidence of strategic timing of sales. Event study methods employed in previous research on plan sales are shown to give biased estimates of post-event abnormal returns when the events are not exogenous to past returns. |
