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

Keywords

Mergers and acquisitions
Method of payment
Probability of informed trading

Access to Document

10.1111/acfi.12562

Link to publication in Scopus

Fingerprint Dive into the research topics of 'The probability of informed trading and mergers and acquisitions'. Together they form a unique fingerprint.

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

@article{0e17584f858f485382c512b36fbcb144,

title = "The probability of informed trading and mergers and acquisitions",

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.",

keywords = "Mergers and acquisitions, Method of payment, Probability of informed trading",

author = "Martin Bugeja and Meiting Lu and Yaowen Shan and Thomas To",

year = "2019",

month = "11",

day = "6",

doi = "10.1111/acfi.12562",

language = "English",

journal = "Accounting and Finance",

issn = "0810-5391",

publisher = "John Wiley & Sons",

}

TY - JOUR

T1 - The probability of informed trading and mergers and acquisitions

AU - Bugeja, Martin

AU - Lu, Meiting

AU - Shan, Yaowen

AU - To, Thomas

PY - 2019/11/6

Y1 - 2019/11/6

N2 - 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.

AB - 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.

KW - Mergers and acquisitions

KW - Method of payment

KW - Probability of informed trading

UR - http://www.scopus.com/inward/record.url?scp=85074791343&partnerID=8YFLogxK

U2 - 10.1111/acfi.12562

DO - 10.1111/acfi.12562

M3 - Article

JO - Accounting and Finance

JF - Accounting and Finance

SN - 0810-5391

ER -