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Prebid Run-Ups Ahead of Canadian Takeovers: How Big Is the Problem?

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  • Michael R. King

Abstract

"This paper studies the price-volume dynamics ahead of takeover announcements for 399 Canadian firms from 1985 to 2002. I find evidence consistent with insiders trading illegally, creating both abnormal returns (ARs) and abnormal turnover (AT) ahead of the announcement. The rise in AT begins far ahead of the actual announcement, accompanied by ARs in the last five trading days, consistent with more informed trading. Data on disclosed insider trading indicate a sharp increase in volume prior to the takeover announcement, suggesting that insiders make use of private information. This study confirms the importance of AT for triggering an insider trading investigation". Copyright (c) 2009 Financial Management Association International.

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  • Michael R. King, 2009. "Prebid Run-Ups Ahead of Canadian Takeovers: How Big Is the Problem?," Financial Management, Financial Management Association International, vol. 38(4), pages 699-726, December.
  • Handle: RePEc:bla:finmgt:v:38:y:2009:i:4:p:699-726
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    Cited by:

    1. Siganos, Antonios, 2013. "Google attention and target price run ups," International Review of Financial Analysis, Elsevier, vol. 29(C), pages 219-226.
    2. Cécile Carpentier & Jean-François L'Her & Stephan Smith & Jean-Marc Suret, 2007. "Risk, Timing and Overoptimism in Private Placements and Public Offerings," CIRANO Working Papers 2007s-27, CIRANO.
    3. Wang, Ying & Lahr, Henry, 2017. "Takeover law to protect shareholders: Increasing efficiency or merely redistributing gains?," Journal of Corporate Finance, Elsevier, vol. 43(C), pages 288-315.
    4. Madura, Jeff & Marciniak, Marek, 2014. "Bidder country characteristics and informed trading in U.S. targets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 256-284.
    5. Gillan, Stuart L. & Panasian, Christine A., 2014. "On Litigation Risk and Disclosure Complexity: Evidence from Canadian Firms Cross-Listed in the US," The International Journal of Accounting, Elsevier, vol. 49(4), pages 426-454.
    6. Eckbo, B. Espen, 2009. "Bidding strategies and takeover premiums: A review," Journal of Corporate Finance, Elsevier, vol. 15(1), pages 149-178, February.
    7. Agrawal, Anup & Nasser, Tareque, 2012. "Insider trading in takeover targets," Journal of Corporate Finance, Elsevier, vol. 18(3), pages 598-625.
    8. repec:eee:reveco:v:51:y:2017:i:c:p:174-192 is not listed on IDEAS
    9. Aitken, Michael & Cumming, Douglas & Zhan, Feng, 2013. "Exchange trading rules, surveillance and insider trading," CFS Working Paper Series 2013/15, Center for Financial Studies (CFS).
    10. Ordu, Umut & Schweizer, Denis, 2015. "Executive compensation and informed trading in acquiring firms around merger announcements," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 260-280.
    11. Ngo, Thanh & Susnjara, Jurica, 2016. "Hostility and deal completion likelihood in international acquisitions: The moderating effect of information leakage," Global Finance Journal, Elsevier, vol. 31(C), pages 42-56.
    12. repec:spr:infosf:v:19:y:2017:i:3:d:10.1007_s10796-017-9753-3 is not listed on IDEAS
    13. Inga Chira & Jeff Madura, 2013. "Impact Of The Galleon Case On Informed Trading Before Merger Announcements," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 36(3), pages 325-346, September.
    14. Cumming, Douglas & Dannhauser, Robert & Johan, Sofia, 2015. "Financial market misconduct and agency conflicts: A synthesis and future directions," Journal of Corporate Finance, Elsevier, vol. 34(C), pages 150-168.
    15. Danbolt, Jo & Siganos, Antonios & Vagenas-Nanos, Evangelos, 2015. "Investor sentiment and bidder announcement abnormal returns," Journal of Corporate Finance, Elsevier, vol. 33(C), pages 164-179.
    16. Lorne N. Switzer & Jun Wang, 2017. "An event based approach for quantifying the effects of securities fraud in the IT industry," Information Systems Frontiers, Springer, vol. 19(3), pages 457-467, June.
    17. Kedia, Simi & Zhou, Xing, 2014. "Informed trading around acquisitions: Evidence from corporate bonds," Journal of Financial Markets, Elsevier, vol. 18(C), pages 182-205.
    18. Amporn SOONGSWANG, 2012. "Do M&A Enhance Values? Mixed Methods And Evidence," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 7(3(21)/ Fa), pages 312-325.
    19. Aitken, Michael & Cumming, Douglas & Zhan, Feng, 2015. "Exchange trading rules, surveillance and suspected insider trading," Journal of Corporate Finance, Elsevier, vol. 34(C), pages 311-330.
    20. Maria Rosa Borges & Ricardo Gairifo, 2013. "Abnormal returns before acquisition announcements: evidence from Europe," Applied Economics, Taylor & Francis Journals, vol. 45(26), pages 3723-3732, September.

    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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