Strategic Communication among Banks
60 Pages Posted: 22 Dec 2021 Last revised: 8 Mar 2024
There are 2 versions of this paper
Information Transmission between Banks and the Market for Corporate Control
Date Written: March 4, 2024
Abstract
Do economic incentives govern information diffusion in markets? Using international banks’ advisory activities in corporate takeovers as their source of private information, we show in supervisory data that banks with closer ties to the target, but not the acquirer, advisor trade profitably in the target’s stock prior to the deal announcement. This trading behavior is associated with a higher premium paid by the acquirer without compromising the deal success. As the incentives of informed traders are aligned only with those of the target shareholders, which are represented by the target advisor, our evidence suggests strategic information transmission among these banks.
Keywords: bank networks, trading, information transmission, mergers and acquisitions, syndicated lending
JEL Classification: D22, G14, G20, G21, L14
Suggested Citation: Suggested Citation