More Insiders, More Insider Trading: Evidence from Private Equity Buyouts

Acharya, Viral V.; Johnson, Timothy C.

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More Insiders, More Insider Trading: Evidence from Private Equity Buyouts

CEPR Discussion Paper No. DP6622

54 Pages Posted: 5 Jun 2008

See all articles by Viral V. Acharya

Viral V. Acharya

New York University (NYU) - Leonard N. Stern School of Business; New York University (NYU) - Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Timothy C. Johnson

University of Illinois at Urbana-Champaign

There are 3 versions of this paper

Date Written: December 2007

Abstract

Recent takeover activity has been characterized by broader participation in acquiror financing on both debt and equity sides. We focus on private equity buyouts, and investigate whether the number of financing participants is related to the likelihood of insider trading prior to the bid announcement. Results suggest that more insiders leads to more insider trade. We study stock, option, bond, and CDS markets. Suspicious stock and options activity is associated with more equity participants, while suspicious activity in the credit markets is associated with more debt participants. The results highlight an important channel in the flow of information and may be consistent with models of limited competition among informed insiders. They are unlikely to be consistent with models of optimal regulation.

Keywords: asymmetric information, LBO, private equity, regulation

JEL Classification: D82, G14, K42

Suggested Citation: Suggested Citation

Acharya, Viral V. and Acharya, Viral V. and Johnson, Timothy C., More Insiders, More Insider Trading: Evidence from Private Equity Buyouts (December 2007). CEPR Discussion Paper No. DP6622, Available at SSRN: https://ssrn.com/abstract=1140551