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Merger Announcements and Insider Trading Activity: An Empirical Investigation
Author(s) -
KEOWN ARTHUR J.,
PINKERTON JOHN M.
Publication year - 1981
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1981.tb04888.x
Subject(s) - insider trading , insider , business , information leakage , public information , empirical evidence , monetary economics , accounting , financial economics , finance , economics , computer security , internet privacy , computer science , political science , law , philosophy , epistemology
This paper provides evidence of excess returns earned by investors in acquired firms prior to the first public announcement of planned mergers. The study is distinguished from earlier merger studies in its use of daily holding period returns for the 194 firms sampled. The results confirm statistically what most traders already know. Impending merger announcements are poorly held secrets, and trading on this nonpublic information abounds. Specifically, leakage of inside information is a pervasive problem occurring at a significant level up to 12 trading days prior to the first public announcement of a proposed merger.