The Probability of Informed Trading and Mergers and Acquisitions
Accounting and Finance, Vol. 61, 169-203, 2021
45 Pages Posted: 26 Jan 2018 Last revised: 25 Jul 2022
Date Written: January 25, 2018
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: Suggested Citation