Insider Trading In "Failed-style" M&A

M&A is an essential way for development of listed company.Unlike Venture Capital or IPO,merger and acquisition are more suitable for matured company to develop themselves.Many Articles has proved that mergers and acquisitions allow companies grow faster and make the shareholders wealthier.But there are a lot of Chinese listed companies take advantage of M&A to manipulate stock price.They made an M&A gimmick to heighten the stock prices so that the shareholders can sell their stocks and evacuate their funds.Then,those companies tell the public the M&A is failed,but at that time,the stock price is not as important as it was before.This phenomenon not only drew attention from the public but also attracted supervisor's concern.The media called it "failed-style" M&A,while regulatory authorities also introduced the corresponding measures.On November 26th 2014,the Shanghai Stock Exchange issued a policy called "the Trail Guidelines for the information of disclosure of M&A,Trading Suspension and Trading Resumption"to strengthen the regulatory of "failed-style" M&A.With the introduction of this provision,the listed company's "failure-style"M&A has reduced a lot.But there are two points cannot be ignored.First,the"fail-style" M&A still exists.Secondly,nobody knows the insider trading in Chinese "fail-style" M&A.This study is based on the background above and aimed to explore the insider trading hidden behind Chinese M&A and,particularly,Chinese "failed-style" M&A.In the literature review part,I sum up the relevant papers and make analysis,finding out that in the existing literature,scholars has proposed 4 models for insider trading detecting,which contain PIN model,LMSW model,bid-ask spread model and event study.Chinese scholars have applied these methods to Chinese stock market to do research on insider trading in China,finding that insider trading is severe in Chinese M&A.However,due to the ignorance of "failed-style" M&A,there's no research on this topic.Nobody has explored the insider trading in "failed-style" M&A before as well.As a result,this article is the first article on the insider trading in"failed-style" M&A,but also the first article to do research on "failed-style" M&A.This is exactly the value of this paper lies.Then,I make two preparations for empirical study part.One preparation is theoretical analysis,the other is research design.In theoretical analysis part,I first defines the related concepts of insider trading and the "failed-style" M&A,and then introduces the event study method to be applied in this paper.At the end,the author puts forward the research hypothesis from the reality and theory,and then leads to the empirical part.In study design,the author will explain the parameters set for event studies and introduce the non-parameter test for the following empirical part.In this way,the empirical study part can be more clarified to the reader.In empirical part,this paper does descriptive analysis first,finding that theprivate listed company,state-owned company and local-government's company are the most activate participants of M&A.But they also have more "failed-style"M&A examples.Then,in order to verify the assumptions I made before,the paper will make a comparison between "successful-style" and "failure-style" M&A subsample in three aspects:Firstly,this paper will make a contrast between the CAR of "successful-style"M&A and "failure-style" M&A.Then,this paper will make a non-parameter test on the AR of "successful-style" M&A and "failure-style" M&A.Thirdly,this paper will explore how severe the insider trading is in Chinese A share market by an empirical model.The result is identical with the hypothesis,showing the insider trading is more severe in "failure-style" M&A than "successful-style" M&A because the CAR and AR of "failure-style" M&A a greater than "successful-style" M&A.Furthermore,we have showed more evidence in Robustness Part.According to the results above,this paper has worked out some suggestionsfor regulatory authorities and listed companies.For regulatory authorities,they should standardize institution for information disclosure of M&A;improve the technology of insider trading disclosure and increase penalties for insider trading.For listed companies,they ought to keep the insider information secret,and improve the capability of management.