Does insider trading explain price run-up ahead of takeover announcements?


  • This paper was made possible by the generous funding of the Corporate Governance Research Centre. The authors would like to thank the conference participants of the second annual Finance and Corporate Governance Conference for their feedback, particularly the input of Bart Frijns, Robert Faff and Tom Smith, as well as seminar participants at La Trobe and Monash Universities. We would also like to acknowledge the thoughtful input of an anonymous referee.


This study empirically examines the impact of changes in substantial shareholdings ahead of 450 Australian takeover offers between the years 2000 and 2009. Previous studies have attributed a significant proportion of the price run-up effect in takeover targets to insider-trading behaviour. This study examines the contribution of a broad range of public information sources that are known to typically generate market anticipation, including the acquisition of toeholds ahead of takeover announcements. Our findings show no significant pre-bid run-up for takeover targets after considering these sources. We conclude from these results that previous findings attributing pre-bid share price run-up to illegal insider trading may overstate the existence of such conduct.