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Information leakages and the costs of merging in Europe

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  • Jeff Madura
  • Thanh Ngo
  • Jurica Susnjara

Abstract

Based on a comprehensive sample of European mergers over the 1997--2011 period, we find that information leakages experienced by target firms are conditioned on the investor protection characteristics in the target’s country. Specifically, information leakages are smaller for targets in European countries that experienced a greater improvement in rule of law and political stability. We also investigate whether and how bidders respond to information leakages experienced by targets that they are pursuing. We find no evidence that bidders reduce their bids of targets that experience abnormally large stock price run-ups. This implies that bidders incur a portion of the cost of informed trading that occurs before the merger bid is announced. Based on our results, it can be stated that regulatory actions that could reduce the level of informed trading in European countries may allow for a more active and efficient market for corporate control.

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  • Jeff Madura & Thanh Ngo & Jurica Susnjara, 2014. "Information leakages and the costs of merging in Europe," Applied Financial Economics, Taylor & Francis Journals, vol. 24(8), pages 515-532, April.
    • Handle: RePEc:taf:apfiec:v:24:y:2014:i:8:p:515-532
    DOI: 10.1080/09603107.2014.884699
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    Cited by:

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    2. R. Ferretti & P. Pattitoni & R. Patuelli, 2016. "Market Abuse Directive and Insider Trading: Evidence from Italian Tender Offers," Working Papers wp1071, Dipartimento Scienze Economiche, Universita' di Bologna.
    3. Riccardo Ferretti & Pierpaolo Pattitoni & Roberto Patuelli, 2021. "Insider Trading and the Market Abuse Directive: Are Voluntary and Mandatory Takeover Bids Different?," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 7(3), pages 461-485, November.

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