Why Has the FCAs Market Cleanliness Statistic for Takeover Announcements Decreased Since 2009?

Abstract

After remaining close to 30% for four years, the FCA’s market cleanliness statistic for takeovers decreased to about 15% between 2010 and 2013. This paper investigates the possible explanations for the fall in the statistic. We find evidence to exclude methodological bias, information leaking earlier relative to the takeover announcement or changes in sample characteristics as explanations for the decrease. This supports the hypothesis that the recent decrease in the statistic indicates that markets are cleaner. We note that the change in the statistic coincides with a material increase in regulatory enforcement activity and sanctions. Finally, we show that international comparisons of market cleanliness statistics can be misleading, and so should not be made, because countries have different disclosure regimes that affect the overall level of the statistic.

Keywords: Insider trading, event studies

JEL Classification: G14, G18