Who Really Moves the Share Price in a Takeover?
52 Pages Posted: 19 Apr 2010 Last revised: 7 Mar 2011
Date Written: February 19, 2011
Abstract
Extant finance literature proposes that informed investors must be compensated for their information. At present the share price movement research documents however that it is informed investors who disproportionately move the share price in a takeover which contradicts this proposition. A more logical outcome which reconciles both theory and practise would be that it is the sophisticated trader who moves the share price for the takeover occasion. The distinction between an informed and a sophisticated trader is not employed however by share price impact research. This paper consequently investigates who really moves the share price in a takeover event for four investor classes identified by concurrent research as sophisticated, informed, unsophisticated, and uninformed. For the analysis the public information hypothesis is investigated. This study finds that it is the sophisticated trader (specifically nominees, fund managers) who are responsible for disproportionately moving the share price for target firms; no investor class is found however to disproportionately move the share price for the bidders. With respect to this outcome, this study concludes that it is a marginally sophisticated trader who is responsible for the share price movement for the takeover occasion.
Keywords: Share Price Impact, Takeover
JEL Classification: G34
Suggested Citation: Suggested Citation
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