The probability of informed trading and mergers and acquisitions

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

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


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 languageEnglish
Pages (from-to)169-203
Number of pages35
JournalAccounting & Finance
Issue number1
Early online date6 Nov 2019
Publication statusPublished - Mar 2021


  • Mergers and acquisitions
  • Method of payment
  • Probability of informed trading


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