Do SEC’s 10b5-1 Safe Harbor Rules Need To Be Rewritten?

We examine the profitability of insider trading under SEC Rule 10b5-1 plans. The plans do work to prevent some informed trading. However, on average, insider trading under the safe harbor plans appears to be motivated by material non-public information. We propose some policy changes to tighten the rule and enable separation of informed and uninformed insider trading

How Should Retirement Plans Be Organized?

Americans have a tough time saving for their retirement. To make matters worse, the move from defined benefit (DB) to defined contribution plans (DC) over the years has required greater investor sophistication, discipline, and sound investment advice. Unfortunately, the current rules regarding investment advice for defined contribution plans do not address the two critical deficiencies of the current system, namely opacity and conflicts of interest. We propose that one-master standard be instituted along with strict transparency requirements to control the conflicts of interest and improve retirement savings advice. We also recommend that only passive, well-diversified index funds for stocks and bonds should qualify as retirement vehicles.http://deepblue.lib.umich.edu/bitstream/2027.42/133960/1/1332_Avci.pdfhttp://deepblue.lib.umich.edu/bitstream/2027.42/133960/4/1332_Avci_Oct2016.pdfDescription of 1332_Avci_Oct2016.pdf : October 2016 revisio

Manipulative Games of Gifts by Corporate Executives

Executives use a variety of manipulative games to maximize the value of their gifts, including backdating, spring-loading, bullet-dodging and insider information. We find that executives exploit a legal loophole to backdate their gifts. Stock prices rise abnormally about 6% during the one-year period before the gift date and they fall abnormally by about 5% during the one year after the gift date. We find this pattern is stronger for late-reported gifts, which is consistent with the backdating hypothesis. We suggest policy recommendations that should improve the compliance of gifts with the requirements of anti-fraud provisions of federal securities laws.http://deepblue.lib.umich.edu/bitstream/2027.42/117412/1/1304_Schipani.pd

Eliminating Conflicts of Interests in Banks: The Significance of the Volcker Rule

Public policy has been focused on controlling the conflicts of interests in banks for the last eighty-five years with limited success. Banks have a unique place in the economy as intermediaries between investors and companies, allowing them to obtain significant private, proprietary information. Public policy is focused on trying to ensure that banks do not misuse this information for their own benefit to the detriment of their clients. This is a tough task

The Economic Impact of Backdating of Executive Stock Options

This Article discusses the economic impact of legal, tax, disclosure, and incentive issues arising from the revelation of dating games with regard to executive option grant dates. It provides an estimate of the value loss incurred by shareholders of firms implicated in backdating and compares it to the potential gain that executives might have obtained through backdating. Using a sample of firms that have already been implicated in backdating, we find that the revelation of backdating results in an average loss to shareholders of about 7%. This translates to about $400 million per firm. By contrast, we estimate that the average potential gain from backdating to all executives in these firms is about$500,000 per firm annually. We suggest some remedies not only for backdating, but also for other dubious practices such as springloading

Do Independent Directors Curb Financial Fraud? The Evidence and Proposals for Further Reform

In this article, we argue that the U.S. corporate governance rules put too much faith in the independent board members and insufficient emphasis on the shareholders themselves to control and monitor the top management. Given the agency problem between the board of directors and the shareholders, outside directors can be captured by management, thereby leading to inadequate checks on management. The evidence presented in this paper shows that outside board members do not exercise sufficient controls on the management even when the management has gone awry. To solve this agency problem, we propose increasing the power of the principals: make shareholder resolutions binding on management, require a one share, one vote rule to increase the voting rights of shareholders, as well as give the shareholders the ability to directly nominate and/or actively vote against board members.https://deepblue.lib.umich.edu/bitstream/2027.42/139595/1/1352_Schipani_Nov17.pdfhttps://deepblue.lib.umich.edu/bitstream/2027.42/139595/4/1352_Schipani_Aug18.pdfhttps://deepblue.lib.umich.edu/bitstream/2027.42/139595/6/1352_SchipaniOct2018.pdfDescription of 1352_Schipani_Aug18.pdf : Aug 2018 Pre-publication draftDescription of 1352_SchipaniOct2018.pdf : October 2018 revisio

Ending Executive Manipulations of Incentive Compensation

In this article, we analyze whether the manipulation of stock options still continues to this day. Our evidence shows that executives continue to employ a variety of manipulative devices to increase their compensation, including backdating, bullet-dodging, and spring- loading. Overall, we find that as a result of these manipulative devices executives are able to increase their compensation by about 6%. We suggest a simple new rule to end all dating games in executive compensation. We propose that all grants of stock options in executive compensation be awarded on a daily pro-rata basis and priced accordingly. This proposal would leave no incentive to game option grant dates or manipulate information flow.http://deepblue.lib.umich.edu/bitstream/2027.42/117413/1/1305_Schipani.pd

The Elusive Monitoring Function of Independent Directors

Federal law mandates that audit and compensation committees of public companies be comprised entirely of independent directors. The assumption underlying these legal requirements is that independent directors are more likely to act as monitors of the company’s top management. In this paper, we test this assumption. We conduct our tests by examining the level, direction, and profitability of independent directors’ insider trades and compare these to the trades of other members of top management in firms defending class-action lawsuits. Our evidence indicates that there are no differences between the trading activity of independent directors and other insiders during the class period. Our findings cast doubt on the effectiveness of independent directors’ monitoring role.https://deepblue.lib.umich.edu/bitstream/2027.42/145437/1/1384_Schipani.pd