Short sales around M&A announcements
Purpose – The purpose of this paper is to examine changes in short-sale transactions of target firms and acquiring firms around merger and acquisition (M&A) announcements using daily short-sale transaction data from the New York stock exchange and NASDAQ. The paper further aims to investigate the link between short-sale transactions and trading costs. Design/methodology/approach – Two abnormal short-sale measures are developed. Two regression models based on the two short-sale measures are constructed and ordinary least squares is used to estimate the regressions. Two samples to test bid-ask spreads (BAS) before and after M&A announcements t-test are used. Findings – The paper finds that target firms experience significant excess short sales (ES) from day-1 to day+7; while acquiring firms experience significant ES from day 0 to day+20. For acquiring firms, the five-day pre-announcement abnormal short sale is negatively related to the announcement day return and is positively related to post-announcement return. Such a relationship for target firms is not observed. For target firms, it is found that changes in short activity are not significantly related to changes in trading cost. For acquiring firms, short activity changes are positively related to quoted spreads and percentage quoted spreads. The short-sale activity changes are negatively related to effective spreads. Research limitations/implications – The paper is a first step to understanding whether short sales affect market liquidity around M&A announcements; therefore restriction is necessary. Additional research can be done which should extend the current study to include the options market. Practical implications – From the results, the paper cannot conclude that short sellers are informed traders around M&A announcements. Therefore restrictions on short sales around M&A announcements may not be warranted. Originality/value – The paper fills an important blank in the existing literature by examining short-sale transactions around M&A announcements. Such an investigation is of particular interest to market regulators as they try to update the short-sale rules.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 1 (2009)
Issue (Month): 2 (May)
|Contact details of provider:|| Web page: http://www.emeraldinsight.com|
|Order Information:|| Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK|
Web: http://www.emeraldinsight.com/jfep.htm Email:
When requesting a correction, please mention this item's handle: RePEc:eme:jfeppp:v:1:y:2009:i:2:p:177-197. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Virginia Chapman)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.