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I only fear when I hear: How media affects insider trading in takeover targets

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  • Aleksanyan, Mark
  • Danbolt, Jo
  • Siganos, Antonios
  • Wu, Betty (H.T.)

Abstract

We study how target firm insiders respond to Wall Street Journal articles referring to illegal insider trading in past mergers. Such articles lead to target insider share purchases before bid announcement to drop by 75%. This effect is stronger nearer the bid announcement and increases with article visibility. It remains significant after controlling for public enforcement intensity, but is weakened by the greater potential for profitable trading. Our results suggest insider trading articles temporarily heighten the perception of litigation and reputation risks. Overall, our study indicates that such articles have a meaningful short-term deterrence effect on opportunistic insider trading, and highlights the disciplinary role of the media.

Suggested Citation

  • Aleksanyan, Mark & Danbolt, Jo & Siganos, Antonios & Wu, Betty (H.T.), 2022. "I only fear when I hear: How media affects insider trading in takeover targets," Journal of Empirical Finance, Elsevier, vol. 67(C), pages 318-342.
    • Handle: RePEc:eee:empfin:v:67:y:2022:i:c:p:318-342
    DOI: 10.1016/j.jempfin.2022.04.004
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    More about this item

    Keywords

    Insider trading; Deterrence; Media coverage; Risk perception; Takeover targets;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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