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10 faculty research Steve Matsunaga aN INSIdEr advaNtagE? Steve Matsunaga’s research on a little-known insider stock trading transaction has garnered attention from the media and investors. consider this: you hold substantial stock in a company on which you are a board member. The stock has performed exceptionally well in the past year—so well that it has thrown your investment portfolio out of whack. Thus, instead of having 20 percent of your portfolio invested in that stock, you now have 40 percent. If you were a lay investor, you could easily re-balance your investments so not all your eggs were in one proverbial basket. But as a company officer, you are considered a stock trading insider, which severely limits your ability to sell a large number of shares quickly in order to diversify your investments. That’s a dilemma all inside traders face due to restrictions and regulations. There is an alternative, however, known as prepaid variable forwards (PVFs). PVFs, according to a New York Times reporter, are like “pawnshop deals for the fabulously wealthy.” They are complex contracts that allow insiders to effectively divest a large portion of their holdings through a single transaction. In fact, the average PVF transaction is $22 million. To better understand these transactions and analyze their impacts, Associate Professor of Accounting Steve Matsunaga recently published an article (with Alan D. Jagolinzer and P. Eric Yeung) in the December 2007 Journal of Accounting Research titled “An Analysis of Insiders’ Use of Prepaid Variable Forward Transactions.” That paper has garnered attention from BusinessWeek and other media outlets because it addresses the question of whether insiders are able to time these “off-market” PVF transactions to coincide with anticipated firm performance. Specifically, Matsunaga et al.’s paper analyzes 203 PVF contracts initiated between August 8, 1996, and June 30, 2004, and made public through filings with the Securities and Exchange Commission. That analysis uncovered, according to The Wall Street Journal article referring to the research, that corporate insiders tend to execute PVFs after a stock has performed exceptionally well, but before the stock’s growth has declined. Thus, PVF contracts may be used as indicators reflecting information regarding anticipated firm performance. That is why the paper recommends further academic inquiry on the subject as well as on how PVFs relate to other insider off-market transactions. It is also why Matsunaga shares knowledge he gained while conducting the research with students in the classroom. The PVF, he said, “is a great teaching example for talking about the structure of security transactions and how risk, tax, and information considerations intersect in those financial transactions.”
of forESt grovE aNd tIMBErlaNd Richard E. Hanson ’65 might have seemed destined for a career in the timber industry, but it was his thirst for knowledge and drive to do things better that made him successful. y you’re writing a novel. The lead character is a top executive in a giant international timber company. Will you say that he was born and raised in a town called Forest Grove? Naah, too contrived. P rofI les I n sUCCess Yet Forest Grove, Oregon, is the hometown of Richard E. Hanson, chief operating officer of Weyerhaeuser Co. And although he likes the place and is on the governing board of Pacific University located there, he attended the University of Oregon. He earned a B.S. in industrial management in 1965 after first majoring in landscape architecture. After four years in a U.S. Gypsum management training program, young Rich Hanson looked around for a company that was on the move. He He had heard heard good things about Weyerhaeuser, so he called called the corporation’s controller and expressed interest in an entry-level position in operational auditing. “But I don’t don’t have have any money, so would you buy me me a plane ticket and interview interview me?” Hanson recalled asking. “And he said he would. So he bought my my plane ticket and, as they say, say, the rest is history.” Much of that that history, including eighteen years in Springfield, Oregon, involved timberland. timberland. So it was no surprise when in 1999 Hanson became became the the head head of all company timberlands. Four years later, he was elected COO, the position he holds today—but not for long. Weyerhaeuser has mandatory retirement at at age sixty-five for top managers. Hanson will turn sixty-five in November 2008. He and and Joy, his high school school sweetheart sweetheart and wife of forty-four years, will move to to a home with with eight acres acres on the the Longbranch, Longbranch, Washington, Washington, waterfront. “It’s enough ground ground to to justify owning a couple of tractors,” he chuckled. “And I’m starting my classic car collection with a ’59 Corvette.” Other postretirement plans plans might might include some guest lecturing. lecturing. He’s interested in the Center Center for Sustainable Business Practices at the Lundquist College of Business. “I’ve gotten quite familiar with supply chain management and enterprise resource planning systems,” he said, noting that Weyerhaeuser has embarked on related related programs of its own. He understands the theories “and the the practical aspects of it as well.” He also will continue to follow Weyerhaeuser’s expansion in South America. In two minutes he he can tell you more about growing eucalyptus trees in Uruguay for hardwood flooring than you can readily absorb. Unless you’re you’re a good student— which which he he was and still is. 11
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