Information leakages and the costs of merging in Europe

Price run-ups and insider trading laws under different regulatory environments

“…Consistent with the literature (e.g., Jarrell and Poulsen, 1989;Sanders and Zdanowicz, 1992), we find that the pre-announcement abnormal stock returns are greater by 8.2% when there are rumors about the forthcoming deal. In addition, as expected based on relevant studies (e.g., Madura et al, 2014), when the target and bidder are in the same industry the pre-announcement stock returns are lower by 6.4%.…”

“…22 These results suggest that bidders pay higher premiums when the pre-announcement price run-ups are high. The results are in line with Madura et al (2014) and imply that bidders incur part of the cost of informed trading that occurs prior to the announcements of takeovers. Thus, we…”

“…In contrast, Madura et al (2014) find a positive relation between the premium offered by the bidder and the pre-announcement price run-ups in Europe. To examine whether the information leakage experienced by target firms is associated with the premium paid by the bidders, we follow Schwert (1996) and Madura et al (2014)…”

“…Next, we re-run our baseline regression (equation 3) converting all negative price run-ups into zeros. This is because negative run-ups might occur when private information is overwhelmed by the target's adverse conditions (Jarrell and Poulsen, 1989;Madura et al, 2014). The results of these tests are reported in Panel A of Table 8 and show that our findings do not change when we proceed with this conversion.…”

“…1989; Holmström and Tirole, 1993;Mitchell and Mulherin, 1996;Cole, 2007;Eckbo, 2009;Brigida and Madura, 2012;Betton et al, 2014;Madura et al, 2014;Dai et al, 2017;Dutordoir et al, 2020).…”