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The probability of informed trading and mergers and acquisitions

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  • Martin Bugeja
  • Meiting Lu
  • Yaowen Shan
  • Thomas To

Abstract

This paper investigates the role of the probability of informed trading (PIN) in mergers and acquisitions (M&A). We show that acquirers with higher PINs use more cash to finance their deals due to their higher cost of equity, and acquirers use more equity financing when acquiring targets with higher PINs to share the information risk with the target shareholders. We also find that acquirers and targets with higher PINs both experience higher announcement returns when cash financing is used, indicating that PINs are priced in the M&A market.

Suggested Citation

  • Martin Bugeja & Meiting Lu & Yaowen Shan & Thomas To, 2021. "The probability of informed trading and mergers and acquisitions," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(1), pages 169-203, March.
    • Handle: RePEc:bla:acctfi:v:61:y:2021:i:1:p:169-203
    DOI: 10.1111/acfi.12562
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