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

See all articles by Jana P. Fidrmuc

Jana P. Fidrmuc

Warwick Business School - Finance Group

Chunling Xia

Queen Mary University of London

Date Written: March 10, 2021

Abstract

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

Fidrmuc, Jana P. and Xia, Chunling, Target Insiders’ Preferences When Trading Before Takeover Announcements: Deal Completion Probability, Premium and Deal Characteristics (March 10, 2021). European Financial Management, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3255496 or http://dx.doi.org/10.2139/ssrn.3255496

Jana P. Fidrmuc (Contact Author)

Warwick Business School - Finance Group ( email )

Warwick Business School
Coventry CV4 7AL
United Kingdom

Chunling Xia

Queen Mary University of London ( email )

School of Business and Management
Mile End Road
London, E1 4NS
United Kingdom

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