Does insider trading explain price run-up ahead of takeover announcements?

Angelo Aspris, Sean Foley, Alex Frino and Robert Faff

Accounting and Finance, 2014, vol. 54, issue 1, 25-45

Abstract: type="main" xml:id="acfi12003-abs-0001" xml:lang="en">

This study empirically examines the impact of changes in substantial shareholdings ahead of 450 Australian takeover offers between the years 2000 and 2009. Previous studies have attributed a significant proportion of the price run-up effect in takeover targets to insider-trading behaviour. This study examines the contribution of a broad range of public information sources that are known to typically generate market anticipation, including the acquisition of toeholds ahead of takeover announcements. Our findings show no significant pre-bid run-up for takeover targets after considering these sources. We conclude from these results that previous findings attributing pre-bid share price run-up to illegal insider trading may overstate the existence of such conduct.

Date: 2014
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