When a gift resembles a trojan horse: CEO stock gift and stock price crash risk

This study presents a new interpretation of executives' stock gifts as an agency cost of managerial bad news hoarding. In a sample of US firms, we document a higher stock price crash risk associated with CEO stock gifts. This evidence suggests that stock gifting could be an exit for opportunistic managers to dispose of their unwanted shares and avoid wealth losses when they can no longer withhold negative information about their firm. Further analyses confirm our proposition by showing that the association between stock gifts and crash risk is stronger for CEOs most concerned about their career and personal wealth, which are the two critical motives of managerial bad news hoarding. Finally, we find that more transparent information environments and external monitoring mechanisms, but not an internal governance system, can alleviate the agency problem embedded in CEO stock gifts.