Run-Up of Acquirer's Stock in Public and Private Acquisitions

47 Pages Posted: 24 Jan 2010 Last revised: 18 Mar 2010

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University

Dan Li

The University of Hong Kong - School of Economics and Finance

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2010

Abstract

Acquisition announcements generate predictable movements in the price of the acquirer’s stock. For example, post-announcement returns are typically negative for high Tobin’s q acquirers, stock transactions, and foreign targets, but positive for private equity-backed private targets. Pre-announcement trading of acquirer’s stock is more likely to be attributable to insider trading when the pre-announcement price changes match the expected post-announcement acquirer returns. Based on a sample of Canadian acquirers and public and private acquisition targets from Canada, the U.S. and 31 other countries over the years 1991-2008, we find evidence consistent with insider trading of acquirer’s stock. This evidence, however, is limited to specific situations and is far from generalizable to all types of acquisition announcements. Our findings have policy implications for the allocation of surveillance efforts for initiating insider trading investigations.

Keywords: Acquisitions, Insider Trading

JEL Classification: G14, G34, G38

Suggested Citation

Cumming, Douglas J. and Li, Dan, Run-Up of Acquirer's Stock in Public and Private Acquisitions (March 1, 2010). Available at SSRN: https://ssrn.com/abstract=1540600 or http://dx.doi.org/10.2139/ssrn.1540600

Douglas J. Cumming

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://booksite.elsevier.com/9780124095373/

Dan Li (Contact Author)

The University of Hong Kong - School of Economics and Finance ( email )

Shenzhen
China

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