Insider giving

Corporate insiders can avoid losses if they dispose of their stock while in possession of material nonpublic information. One means ofdisposal, selling the stock, is illegal and subject to prompt mandatoryreporting. A second strategy is almost as effective, yet it faces laxreporting requirements and enforcement. That second method is todonate the stock to a charity and take a charitable tax deduction at theinflated stock price. This “insider giving” is a potent substitute forinsider trading. We show that insider giving is far more widespreadthan previously believed. In particular, we show that insider giving isnot limited to officers and directors. Large investors appear to regularlyreceive material nonpublic information and use it to avoid losses. Usinga vast dataset of essentially all transactions in public company commonstock since 1986, we find consistent and economically significantevidence that these shareholders’ impeccable timing likely reflectsinformation leakage. We also document substantial evidence ofbackdating—investors falsifying the date of their gift to capture a largertax break. We show why lax reporting and enforcement encourageinsider giving, explain why insider giving represents a policy failure,and highlight the theoretical implications of these findings to broadercorporate, securities, and tax debates.