A new working paper by LSE's Dr Moqi Xu demonstrates how chief executives store and time positive press releases to coincide with their own sales of shares, and thereby reap the rewards of short-term increases in price and trading volume.
The paper, Strategic News Releases in Equity Vesting Months, was supported by STICERD, and looked at 166’000 instances where the timing of an announcement was the decision of the chief executive.
Dr Xu and her co-authors - Alex Edmans (LBS), Luis Goncalves-Pinto (National University of Singapore) and Yanbo Wang (INSEAD) - found that in a month during which chief executives’ shares vested there were 5% more discretionary news releases than in the preceding month, suggesting that good news had been held back.
The careful timing of positive press releases enables CEOs to take full advantage of related share price rises by cashing out shortly after the release.
The topical research, with its focus on how short-term incentives can affect executives’ behaviour, has been picked up by the international press: