The probability of informed trading and mergers and acquisitions

Martin Bugeja; Meiting Lu; Yaowen Shan; Thomas To

doi:10.1111/acfi.12562

The probability of informed trading and mergers and acquisitions

Martin Bugeja^*, Meiting Lu, Yaowen Shan, Thomas To

^*Corresponding author for this work

Department of Accounting and Corporate Governance

Research output: Contribution to journal › Article

Abstract

This paper investigates the role of the probability of informed trading (PIN) in mergers and acquisitions (M&A). We show that acquirers with higher PINs use more cash to finance their deals due to their higher cost of equity, and acquirers use more equity financing when acquiring targets with higher PINs to share the information risk with the target shareholders. We also find that acquirers and targets with higher PINs both experience higher announcement returns when cash financing is used, indicating that PINs are priced in the M&A market.

Original language	English
Number of pages	35
Journal	Accounting and Finance
DOIs	https://doi.org/10.1111/acfi.12562
Publication status	E-pub ahead of print - 6 Nov 2019

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Keywords

Mergers and acquisitions
Method of payment
Probability of informed trading

Cite this

Bugeja, M., Lu, M., Shan, Y., & To, T. (2019). The probability of informed trading and mergers and acquisitions. Accounting and Finance. https://doi.org/10.1111/acfi.12562

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Access to Document

10.1111/acfi.12562

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