Target Insiders’ Preferences When Trading Before Takeover Announcements: Deal Completion Probability, Premium and Deal Characteristics
European Financial Management, Forthcoming
70 Pages Posted: 19 Oct 2018 Last revised: 16 Apr 2021
Date Written: March 10, 2021
We contribute to the M&A literature by characterizing the information available to target insiders during the pre-public takeover negotiations. We analyze insider trading in target firms in the US between 2005 and 2018. First, we show that signing confidentiality agreements is an important information threshold. Second, insiders have a good grasp of deal success. They increase their net purchases only in deals with higher completion probability. Third, insiders guess the final offer price well, but their trading strategies additionally reflect their knowledge of deal characteristics. They prefer bidder-initiated, cash, privately negotiated, and strategic deals. Insiders combine several sources of information.
Keywords: Mergers and acquisitions; Insider trading; Target firms
JEL Classification: G34, G14
Suggested Citation: Suggested Citation