Insider Trading in Takeover Targets

63 Pages Posted: 22 Feb 2012  

Anup Agrawal

University of Alabama - Culverhouse College of Commerce & Business Administration

Tareque Nasser

Kansas State University

Multiple version iconThere are 2 versions of this paper

Date Written: February 21, 2012


We examine open market stock trades by registered insiders in about 3,700 targets of takeovers announced during 1988-2006 and in a control sample of non-targets, both during an ‘informed’ and a control period. Using difference-in-differences regressions of several insider trading measures, we find no evidence that insiders increase their purchases before takeover announcements; instead, they decrease them. But while insiders reduce their purchases below normal levels, they reduce their sales even more, thus increasing their net purchases. This ‘passive’ insider trading holds for each of the five insider groups we examine, for all three measures of net purchases, and is more pronounced in certain sub-samples with less uncertainty about takeover completion, such as friendly deals, and deals with a single bidder, domestic acquirer, or less regulated target. The magnitude of the increase in the dollar value of net purchases is quite substantial, about 50% relative to their usual levels, for targets’ officers and directors in the six-month pre-announcement period. Our finding of widespread profitable passive trading by target insiders during takeover negotiations points to the limits of insider trading regulation. Finally, our finding that registered insiders of target firms largely refrain from profitable active trading before takeover announcements contrasts with prior findings that insiders engage in such trading before announcements of other important corporate events, and points to the effectiveness of private over public enforcement of insider trading regulations.

Keywords: Insider trading, Takeovers, Takeover targets, Mergers and acquisitions

JEL Classification: G14, G18, G34, K22

Suggested Citation

Agrawal, Anup and Nasser, Tareque, Insider Trading in Takeover Targets (February 21, 2012). Journal of Corporate Finance, Forthcoming. Available at SSRN:

Anup Agrawal (Contact Author)

University of Alabama - Culverhouse College of Commerce & Business Administration ( email )

Culverhouse College of Business
EFLS, Box 870224
Tuscaloosa, AL 35487-0224
United States
205-348-8970 (Phone)
205-348-0590 (Fax)


Tareque Nasser

Kansas State University ( email )

2097 BB, 1301 Lovers Lane
Department of Finance
Manhattan, KS 66506
United States
(785) 532-4375 (Phone)
(785) 532-6822 (Fax)


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