The Probability of Informed Trading and Mergers and Acquisitions

Accounting and Finance, Forthcoming

45 Pages Posted: 26 Jan 2018 Last revised: 17 Feb 2020

See all articles by Martin Bugeja

Martin Bugeja

University of Technology, Sydney; Financial Research Network (FIRN)

Meiting Lu

Macquarie University - Faculty of Business and Economics; Macquarie University, Macquarie Business School

Yaowen Shan

University of Technology Sydney; Financial Research Network (FIRN)

Thomas Y. To

University of Sydney Business School

Date Written: January 25, 2018

Abstract

This paper investigates the role of the probability of informed trading (PIN) in mergers and acquisitions. We show that acquirers with higher PINs use more cash to finance their deals due to their higher cost of equity, and acquirers use more equity financing when acquiring targets with higher PINs to share the information risk with the target shareholders. We also find that acquirers and targets with higher PINs both experience higher announcement returns when cash financing is used indicating that PINs are priced in the M&A market.

Keywords: Mergers and Acquisitions; Probability of Information-based Trading; Method of payment

JEL Classification: J33, M41

Suggested Citation

Bugeja, Martin and Lu, Meiting and Shan, Yaowen and To, Thomas Yin, The Probability of Informed Trading and Mergers and Acquisitions (January 25, 2018). Accounting and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3109567

Martin Bugeja

University of Technology, Sydney ( email )

Australia
61 2 9514 3743 (Phone)
61 2 9514 3669 (Fax)

Financial Research Network (FIRN)

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

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

Meiting Lu (Contact Author)

Macquarie University - Faculty of Business and Economics ( email )

Sydney, New South Wales 2109
Australia

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

Yaowen Shan

University of Technology Sydney ( email )

PO Box 123
Broadway, NSW 2007
Australia

HOME PAGE: http://profiles.uts.edu.au/Yaowen.Shan

Financial Research Network (FIRN)

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

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

Thomas Yin To

University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

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