THE PRE-ANNOUNCEMENT SHARE PRICE BEHAVIOUR OF UK TAKEOVER TARGETS

Authors

  • K. M. Holland,

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      The authors are respectively, Lecturer in the Department of Accounting, University of Wales, Aberystwyth; and Lecturer in the School of Accounting, Banking and Economics, University of Wales, Bangor. They are grateful for the financial assistance and advice of the ICAEW Research Board, and for the contributions from participants at the 1989 University of Strathclyde Research Workshop, 1990 University of Wales Accounting Colloquium and 1991 European Accounting Association Annual Congress. In particular the authors wish to acknowledge the assistance provided by Professor Mark Tippett.

  • L. Hodgkinson

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      The authors are respectively, Lecturer in the Department of Accounting, University of Wales, Aberystwyth; and Lecturer in the School of Accounting, Banking and Economics, University of Wales, Bangor. They are grateful for the financial assistance and advice of the ICAEW Research Board, and for the contributions from participants at the 1989 University of Strathclyde Research Workshop, 1990 University of Wales Accounting Colloquium and 1991 European Accounting Association Annual Congress. In particular the authors wish to acknowledge the assistance provided by Professor Mark Tippett.


Abstract

This paper examines the sources of pre-bid announcement abnormal returns (ARs) accruing to target companies’ shareholders. To control for publicly available information, targets are classified as either identified or unidentified. The paper finds that prior disclosure of bid related information does give rise to pre-bid ARs. For identified targets there is no evidence that these ARs arise from trading on unpublished price sensitive information. For unidentified targets, trading on unpublished price sensitive information may give rise to ARs, although these ARs could be explained by stakebuilding. ARs do not occur prior to the first bid news item, a result contrary to previous US studies.

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