Purpose
This paper aims to address the question of whether acquiring firm directors trading, prior to a merger or acquisition (M&A) announcement, predicts the share market reaction on M&A announcement.
Design/methodology/approach
Event studies and cross-section regression were used in this analysis.
Findings
This paper finds that acquiring firms with no director trading and firms with net director purchases in the 12 months prior to the M&A announcement earn positive abnormal returns. It is also found that share market reaction to M&A announcements is considerably larger for acquiring firms whose directors do not trade relative to those companies with directors who do trade over the prior 12 months. This director non-trading result is further born out in regression analysis.
Research limitations/implications
The absence of pre-M&A announcement director trading could reflect lower agency costs for the acquiring firm and this might explain to stronger announcement day effect for this group of firms.
Practical implications
The fact that directors choose not to trade in their shares prior to a M&A transaction appears to be viewed as good news by the market.
Social implications
Director trading is value relevant for the acquiring firm and so it is critical that director trading is transparent.
Originality/value
To the best of the authors' knowledge, this question has not been addressed in the literature before, particularly the finding for firms with no director trading in the period prior to the M&A announcement.
This paper provides evidence of the effect of chief executive officer (CEO) remuneration on decisions to disclose voluntary non-generally accepted accounting principles (non-GAAP) financial measures. We investigate profit announcements that focus on the most emphasised part, which includes mandatorily identified information (results for the announcement to the market) and the least emphasised part, which incorporates other sections. By reading the profit announcements and manually collecting non-GAAP financial measures (NGFM) data, there is no reliance on keyword search strings and as such we uncover the pervasiveness of the use of NGFM. Results show that the base component of CEOs' remuneration plays a significant role in reporting NGFM in the most emphasised part of the profit announcement. Conversely, all three (base, short-term and long-term incentives) components of the remuneration package have a significant relationship with the reporting decisions in the least emphasised part of the statement. We find that, depending on the regulatory imposition and the emphasis assigned to the section of the profit announcement, the motive for voluntary disclosure of NGFM can be explained as altruistic (informative) or opportunistic (misleading). We contribute evidence on 'pay-action' rather than 'pay-performance' by incorporating all three components simultaneously into the framework to maintain the assumption of correspondence and internal consistency among those components.
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