Trading of Takeover Target Shares

39 Pages Posted: 20 Aug 2016 Last revised: 23 Nov 2016

See all articles by Jozef Drienko

Jozef Drienko

Australian National University (ANU); Financial Research Network (FIRN)

Jan Drienko

Australian National University (ANU) - Research School of Finance, Actuarial Studies and Applied Statistics

Anna Helen von Reibnitz

Australian National University (ANU); Financial Research Network (FIRN)

Date Written: November 21, 2016

Abstract

A theoretical model proposed by Cornelli and Li (2002) suggests that informed traders transact in shares of the target firm following the announcement of a takeover. In such cases, takeover traders are incentivised to become large shareholders in the target and, in doing so, influence the outcome of the deal. We investigate the impact of these traders on the success of the takeover empirically using intraday data. In addition to the propositions of Cornelli and Li (2002), we also examine the impact of informed trading on the returns to target shareholders. Overall, we find that a 1% increase in informed trading immediately after a takeover announcement increases the likelihood of takeover success by 12.21%. The same increase in informed trading leads to a 2.59% increase in the one day cumulative abnormal returns accruing to target investors. The increase in abnormal returns attributable to a 1% increase in informed trading is 2.64% higher in successful takeovers than in unsuccessful ones. Our empirical test of the Cornelli and Li (2002) framework accurately predicts the takeover outcome in 70% of cases.

Keywords: probability of informed trading, takeover target, takeover success

JEL Classification: G12, G14, G34

Suggested Citation

Drienko, Jozef and Drienko, Jan and von Reibnitz, Anna Helen, Trading of Takeover Target Shares (November 21, 2016). 29th Australasian Finance and Banking Conference 2016. Available at SSRN: https://ssrn.com/abstract=2826385 or http://dx.doi.org/10.2139/ssrn.2826385

Jozef Drienko (Contact Author)

Australian National University (ANU) ( email )

Level 4 ANU College of Business and Economics 26C
Kingsley Street
Canberra, Australian Capital Territory 2601
Australia
+61261257298 (Phone)
+61261250087 (Fax)

HOME PAGE: http://rsfas.anu.edu.au/rsfas/people/?profile=Jozef-Drienko

Financial Research Network (FIRN) ( email )

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

Jan Drienko

Australian National University (ANU) - Research School of Finance, Actuarial Studies and Applied Statistics ( email )

Kingsley Street
acton, ACT 0200
Australia

Anna Helen Von Reibnitz

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

Financial Research Network (FIRN)

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

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