• Corporate Governance;
  • Acquisitions;
  • Private Equity;
  • Insider Trading


Manuscript Type: Empirical

Research Question/Issue: This paper empirically examines whether there is pre-announcement movement of an acquirer's share price and trading volume prior to the announcement of acquisitions in ways consistent with insider trading. Prior papers focus on insider trading of a target's stock; our paper differs by examining for the first time run-up of acquirer's stock, and considers both public and private acquisitions, including private-equity backed acquisitions.

Research Findings/Insights: Acquisition announcements generate predictable movements in the price of the acquirer's stock. Pre-announcement trading in acquirer's stock is more likely to be attributable to insider trading when the pre-announcement price changes match the expected post-announcement acquirer returns. Based on a sample of Canadian acquirers and public and private acquisition targets from Canada, the US and 31 other countries over the years 1991–2008, we find evidence consistent with insider trading of acquirer's stock.

Theoretical/Academic Implications: The evidence consistent with insider trading in this paper is limited to specific situations and is far from generalizable to all types of acquisition announcements. Post-announcement returns are typically negative for high Tobin's q acquirers, stock transactions, and foreign targets, but positive for private equity-backed private targets. We find economically and statistically significant evidence that pre-announcement run-ups move in ways that match these expected post-announcement effects. Pre-announcement movement in acquirer's stock largely depends on the type of acquisition announcement.

Practitioner/Policy Implications: Our findings have significant policy implications for the allocation of surveillance efforts for initiating insider trading investigations.