Bill Gross bonus a mystery as PIMCO denies report it was $290 million
By: Sergio Colabufalo
Bill Gross was a co-founder of Pacific Investment Management (PIMCO) and managed one of the largest mutual funds, focused mostly on bonds. He left the organization in September of this year, but Bloomberg recently reported that in 2013 Gross received a $290 million bonus, and that the bonuses for the 60 managing directors totaled $1.5 billion. PIMCO has stated that these figures are not correct, and that as an important means to attract and retain the best investment talent, the managing directors maintain a substantial interest in the firm, currently 30%.
What sentiments do these types of headlines cause for investors? Do they even impact the company’s stock prices? Looking at PIMCO’s stock price movements since the article was published on November 7, 2014, we see a one-day drop, a slight recovery, followed by a steady decline since November 11, 2013. However, is that enough to say that the bonus announcement was the sole cause for this stocks recent decline? No, there are many other factors that go into stock price; other news related to the firm, industry, and market impacts.
Ramesh and Nimalathasan, academic researchers, published a journal on research they had compiled regarding the impact of bonus announcements on the Colombo Stock Exchange (CSE) in Sri Lanka. Looking at 32 listed companies and 67 different events, results revealed that 43% of Abnormal Returns positively impact, while 57% of Abnormal Returns negatively impact. In addition it was concluded that bonus announcements are do not significantly impact the stock price on the CSE (Ramesh & Nimalathasan, 2011).
We still need to keep in mind that this study was done in Sri Lanka and its relevance to the North American market. When negative news surfaces regarding a firm, there is typically some sort of impact to the share price, whether it is long-term or short-term. What is important to remember is to monitor the market and the industry and protect your investments with options.