Determination of Executive Actions for Self-Enrichment (EASE) at the Cost of Corporate Integrity (preprint)

ABSTRACT

The COVID-19 pandemic and its impact on the US economy led to an unprecedented bailout in the early days of the subsequent recession. Companies lined up for a share of the funds, but many of them were in our estimation unworthy of assistance given risky use of free cashflow for share repurchases, limiting their ability to adjust to an economic downturn. Our research resulted in the creation of the Executive Actions for Self-Enrichment (EASE) score, a quarterly determination of the companies that are working toward long-term business outcomes vis a vis those working towards hollowing out their business in the pursuit of short-term market gains. Scores were determined through the combination of pricing, key financials, and executive stock sales/purchases via SEC Form 4 data. We believe that EASE is able to accurately identify the overleveraging of debt to buy back company shares while executives offload their equity at artificially-induced prices. Conversely, this data also indicates an outsized return effect for the top decile of long-term-focused businesses. Going forward, we expect that EASE will provide a clear window into how companies are being run in a way that is immediately actionable, providing the public with the means to hold companies accountable via their investment decisions and beyond.