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

30 Pages Posted: 10 May 2011

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University

Daniel Li

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Date Written: May 2011


Manuscript Type: Empirical.

Research Question/Issue: This paper empirically examines whether there is pre-announcement movement of an acquirer's share price and trading volume prior to the announcement of acquisitions in ways consistent with insider trading. Prior papers focus on insider trading of a target's stock; our paper differs by examining for the first time run-up of acquirer's stock, and considers both public and private acquisitions, including private-equity backed acquisitions.

Research Findings/Insights: Acquisition announcements generate predictable movements in the price of the acquirer's stock. Pre-announcement trading in 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 US and 31 other countries over the years 1991-2008, we find evidence consistent with insider trading of acquirer's stock.

Theoretical/Academic Implications: The evidence consistent with insider trading in this paper is limited to specific situations and is far from generalizable to all types of acquisition announcements. 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. We find economically and statistically significant evidence that pre-announcement run-ups move in ways that match these expected post-announcement effects. Pre-announcement movement in acquirer's stock largely depends on the type of acquisition announcement.

Practitioner/Policy Implications: Our findings have significant policy implications for the allocation of surveillance efforts for initiating insider trading investigations.

Keywords: Corporate Governance, Acquisitions, Private Equity, Insider Trading

Suggested Citation

Cumming, Douglas J. and Li, Daniel, Run-Up of Acquirer's Stock in Public and Private Acquisitions (May 2011). Corporate Governance: An International Review, Vol. 19, Issue 3, pp. 210-239, 2011. Available at SSRN: or

Douglas J. Cumming (Contact Author)

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States


Daniel Li

affiliation not provided to SSRN

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