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Does target firm insider trading signal the target's synergy potential in mergers and acquisitions?

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  • Suk, Inho
  • Wang, Mengmeng

Abstract

We find that the acquirer's (1) abnormal returns at merger and acquisition (M&A) announcements and (2) long-term abnormal returns after acquisitions increase with target firm insiders’ net purchase ratios. Further, acquisition synergies, measured as the (1) acquirer-target combined cumulative abnormal returns at M&A announcements and (2) changes in three-year operating performance after acquisitions, increase with target insider net purchase ratios. Notwithstanding, targets with higher insider net purchase ratios receive higher takeover premiums. Overall, our findings suggest that, even under the SEC's “short-swing rule,” target insider trading prior to the M&A announcement serves as a credible signal for acquisition outcomes.

Suggested Citation

  • Suk, Inho & Wang, Mengmeng, 2021. "Does target firm insider trading signal the target's synergy potential in mergers and acquisitions?," Journal of Financial Economics, Elsevier, vol. 142(3), pages 1155-1185.
    • Handle: RePEc:eee:jfinec:v:142:y:2021:i:3:p:1155-1185
    DOI: 10.1016/j.jfineco.2021.05.038
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    3. Natalia Wasilewska & Mirosław Wasilewski & Serhiy Zabolotnyy & Dmytro Osiichuk, 2022. "The Impact of M&As on the Competitive Positioning of European Energy Firms and Market Power Concentration on EU National Energy Markets," Energies, MDPI, vol. 15(23), pages 1-19, November.
    4. Gow-Cheng Huang & Kartono Liano & Ming-Shiun Pan, 2023. "Open-market stock repurchases, insider trading, and price informativeness," Review of Quantitative Finance and Accounting, Springer, vol. 60(4), pages 1495-1513, May.
    5. Bittner, Christian & Fecht, Falko & Pala, Melissa & Saidi, Farzad, 2022. "Information transmission between banks and the market for corporate control," Discussion Papers 29/2022, Deutsche Bundesbank.
    6. Hu, May & Tuilautala, Mataiasi & Yang, Jingjing & Zhong, Qian, 2022. "Asymmetric information and inside management trading in the Chinese market," The North American Journal of Economics and Finance, Elsevier, vol. 62(C).

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    More about this item

    Keywords

    Insider trades; Mergers and acquisitions; Regulation; Information asymmetry; Signaling;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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