The Informativeness of Substantial Shareholder Trading in the Lead Up to a Takeover Bid

39 Pages Posted: 1 Feb 2016

See all articles by Millicent Chang

Millicent Chang

The University of Western Australia; University of Wollongong

Raymond da Silva Rosa

The University of Western Australia - Department of Accounting and Finance; Financial Research Network (FIRN)

Wilson Ng

The University of Western Australia

Date Written: January 31, 2016

Abstract

Although substantial shareholders are often considered quasi-insiders, not much is known about the information they possess, especially around changes in corporate control events. We examine whether substantial shareholders in target firms possess information about future takeover activity and if they have such information, whether they trade opportunistically on it. The results show increased purchases by substantial shareholders close to a takeover announcement where these trades predict the likelihood of takeovers. However, they do not predict bid premiums nor other deal characteristics. A comparison of different types of substantial shareholders indicates that institutional shareholder trades are better indicators of takeover likelihood relative to the trades of managerial shareholders. These findings imply that substantial shareholders are indeed quasi insiders who have an informational advantage over other shareholders about future takeover activity and they use this advantage for their own benefit.

Keywords: substantial shareholders, takeovers, informational advantage

JEL Classification: G14, G34

Suggested Citation

Chang, Millicent and da Silva Rosa, Raymond and Ng, Wilson, The Informativeness of Substantial Shareholder Trading in the Lead Up to a Takeover Bid (January 31, 2016). Asian Finance Association (AsianFA) 2016 Conference. Available at SSRN: https://ssrn.com/abstract=2725639 or http://dx.doi.org/10.2139/ssrn.2725639

Millicent Chang (Contact Author)

The University of Western Australia ( email )

35 Stirling Highway
Crawley, Western Australia 6009
AUSTRALIA

University of Wollongong ( email )

Northfields Avenue
Wollongong, New South Wales 2522
Australia

Raymond Da Silva Rosa

The University of Western Australia - Department of Accounting and Finance ( email )

School of Business
35 Stirling Highway
Crawley, Western Australia 6009
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Wilson Ng

The University of Western Australia ( email )

35 Stirling Highway
Crawley, Western Australia 6009
AUSTRALIA

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