Recent takeover activity has been characterized by broader participation in acquiror financing on both debt and equity sides. We focus on private equity buyouts, and investigate whether the number of financing participants is related to the likelihood of insider trading prior to the bid announcement. Results suggest that more insiders leads to more insider trade. We study stock, option, bond, and CDS markets. Suspicious stock and options activity is associated with more equity participants, while suspicious activity in the credit markets is associated with more debt participants. The results highlight an important channel in the flow of information and may be consistent with models of limited competition among informed insiders. They are unlikely to be consistent with models of optimal regulation.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
6622.
Find related papers by JEL classification: D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
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