The Journal of Finance · 1981 · 76 citations · 0 references
Market MicrostructureMergers And AcquisitionsInsider ThreatMerger AnnouncementsBusinessLawMerger EnforcementFinance
The study uses daily holding‑period returns for 194 firms, distinguishing it from prior merger research. Investors earn excess returns on acquired firms up to 12 trading days before merger announcements, confirming that insider information leaks and is widely traded.
ABSTRACT 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.