Institutional Trading in Firms Rumored to be Takeover Targets

76 Pages Posted: 24 Nov 2020

See all articles by Frederick James Davis

Frederick James Davis

Concordia University

Hamed Khadivar

John Molson School of Business, Concordia University, Canada

Thomas John Walker

Concordia University, Quebec - Department of Finance

Date Written: November 18, 2020

Abstract

In this paper we examine institutional trading in proximity to takeover rumors by combining the ANcerno dataset of transaction-level institutional trades with a unique sample of takeover rumor ‘scoops’. We find that institutions are net buyers in firms which subsequently become subject to takeover speculation and that institutional trading predicts which rumored firms will eventually receive takeover bids. Segregating funds according to their propensity to trade, we show that those less likely to purchase rumored targets by chance over the pre-rumor period are more likely to identify firms which will receive bid proposals and that they trade more profitably over both the pre- and post-rumor periods. We test for the presence of informed trading in a variety of ways and conclude that institutional investors appear to trade on material private information which identifies the firms soon to be the target of takeover speculation.

Keywords: Institutional trading, Takeover rumors, Rumored targets, Takeover announcements, Mergers and acquisitions

JEL Classification: G14, G23, G30, G34

Suggested Citation

Davis, Frederick James and Khadivar, Hamed and Walker, Thomas John, Institutional Trading in Firms Rumored to be Takeover Targets (November 18, 2020). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3707240

Frederick James Davis

Concordia University ( email )

Montreal, Quebec
Canada

Hamed Khadivar (Contact Author)

John Molson School of Business, Concordia University, Canada ( email )

H3G 1M8
Canada

Thomas John Walker

Concordia University, Quebec - Department of Finance ( email )

Montreal, Quebec H3G 1M8
Canada

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