Stock Donations Occur Just Before Price Dips, Study Finds

A new study has found that many corporate leaders who donate their company’s stock to their personal or family foundations often do so just before the company’s stock price drops, enabling them to claim big deductions on their taxes, reports The Wall Street Journal.

Conducted by David Yermack, a New York University finance professor, the study analyzed 151 gifts of more than $1-million made from mid-2003 through the end of 2005. The donations represent $728-million and a quarter of all gifts of stock made by chief executives or chairmen during that time period.

Mr. Yermack also found that in many cases, gifts of stock were made following positive earnings announcements but before negative earnings were reported.

Donating shares of stock while the stock price is high helps lessen an executive’s tax bill because the Internal Revenue Service allows a charitable deduction equal to the value of the shares on the date of the gift, the newspaper said.

“On average, the gifts have been extraordinarily well-timed to maximize the associated personal income-tax benefits,” Mr. Yermack told The New York Times. “It seems to me fairly likely that some of these people making them may be monkeying around with paper trails,” he said.

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