Target insiders' preferences when trading before takeover announcements: Deal completion probability, premium and deal characteristics

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 infor...

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Bibliographic Details
Published in:European financial management : the journal of the European Financial Management Association 2022-01, Vol.28 (1), p.162-207
Main Authors: Fidrmuc, Jana P., Xia, Chunling
Format: Article
Language:English
Subjects:
Confidentiality
Insider trading
mergers and acquisitions
target firms
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Summary: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.
ISSN:1354-7798
1468-036X
DOI:10.1111/eufm.12308