An Empirical Study On Informed Trading Of The Listed Companies’ M&A Events--What Are The Factors That Exacerbated The Acquirer’s Informed Trading?

It is a major phenomenon in economic history that firms’scale become larger after acquisitions, almost all giant U.S. companies experienced some form of mergers and acquisitions. Recently, there has whipped up a wave of mergers and acquisitions in china, more and more companies to seek growth through acquisitions, however, Some of the negative news about mergers and acquisitions frequently exposed, A large proportion of insider trading cases that investigated by the Commissionin is related to mergers and acquisitions. In addition, as the most important members know private information, if the shareholding of institutional investors and executives will affect the listed companies’ informed trading? Unlike commodity market, the stock market is characterized by the typical that information scattered and asymmetry. The behavior of different types of traders-informed traders and uninformed traders influence each other, making the price gradually revealing private information. In this article, I choose 103 M & A events between 2004 -2009 from Shenzhen Stock Exchange and Shanghai Stock Exchange, to obtain information on informed trading by use of a listed company transactions data in the market.Firstly, I use Event Study to research on M & A events, to explore whether there are stock trade behaviors by using private information before event announcements based on the theory that information can be reflected by share price; Secondly, this paper use EKOP model proposed by Easley et al. (1996) to directly measure the probability of Informed Trading around M&A announcement, further observing the situation of informed trading around the M&A announcement; Finally, I build a model to study the relationship of institutional ownership and the probability of informed trading before merge announcement, in addition, institutional investors will be classified based on the heterogeneity of institutional investors, I also do a further research about the relationship of the different types of institutional investors and the probability of informed trading.The result of the empirical study to investigate whether there exist informed trading before merge announcement shows that, the share price of sample companies experience an abnormal fluctuation before the mergers and acquisitions announcement, the average cumulative abnormal returns significantly different from zero at the 1% level, that is news was leaked before merge announcement, informed traders use the private information to buyand sell stocks; The result of empirical study about the informed trading around merge announcement show that the probability of informed trading before the period of notice significantly greater than the post-announcement at the 1% level, there are more private information and more serious informed trading before merge announcement; Results of the empirical study about the relationship of institutional investors, executives and the probability of informed trading show that:1)institutional ownership and senior management ownership will significantly increase the probability of informed trading; 2) different kinds of institutional investors have a different influence on the probability of informed trading; 3) as the dominant force in the market, fund holdings would significantly increase the probability of informed trading, and the other types of institutional investors have limited influence on the probability of informed trading of listed stocks.Finally, the penman put forward suggestions to improve the phenomenon of informed trading around M & A announcement based on summarizes the results of empirical research, then, point out the limitations of this study and direction for further research. This paper adds literature about informed trading around merger, and provides the reality evidence for the securities market regulation of informed trading.