The effectiveness of insider trading regulations: The case of the Italian tender offers

Riccardo Ferretti, Pierpaolo Pattitoni and Anna Salinas

Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) from Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi"

Abstract: This study analyzes the effectiveness of the Market Abuse Directive (MAD) in reducing the possible profits of insider trading during voluntary tender offers with the purpose of delisting initiated by controlling shareholders in Italy. Our results suggest that the introduction of the MAD did not produce appreciable effects on the magnitude of abnormal returns and volumes noted in the period preceding the announcement of a tender offer. However, a regression analysis reveals that the MAD has changed the manner in which certain corporate characteristics influence the capacity of insiders to achieve profits. In particular, in the post-MAD period, the market reaction to tender offer announcements tends to be greater for bigger firms. On the other hand, the effect of ownership concentration has become virtually null. We interpret the results in light of the economic problem of the potential insider who chooses the optimal level of insider trading by considering the marginal costs and benefits of the illegal activity.

Keywords: Market Abuse Directive; Tender offer; Delisting; Event study (search for similar items in EconPapers)
JEL-codes: G14 G34 K2 K4 (search for similar items in EconPapers)
Pages: pages 45
Date: 2015-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:mod:wcefin:0057

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