Does Insider Trading Explain Price Run-Up Ahead of Takeover Announcements?

This study empirically examines the impact of changes in substantial shareholdings ahead of 450 Australian takeover offers between the years 2000-2009. Previous studies have attributed a significant proportion of the price run-up effect in takeover targets to insider-trading behavior. This paper examines the contribution of a broad range of public information sources that are known to typically generate market anticipation, including the acquisition of toeholds ahead of takeover announcements. Our findings show no significant pre-bid run-up for takeover targets after considering these sources. We conclude from these results that previous findings attributing pre-bid share price run-up to illegal insider trading may overstate the existence of such conduct