Acquisitions and Insider Trading: The Chinese Experience

Although pre bid run ups and illegal insider trading on

takeovers is studied in several countries, there is no study

on this phenomenon in Chinese corporations. Amidst the

very few studies which do examine Chinese mergers and

acquisitions, this unique aspect is studied by looking at

pre-bid run up of prices / returns for both acquirers and

target. A distinct pattern and magnitude of run ups is found

in a sample of Chinese firms. Surprisingly, the pattern

shows run ups occurring a relatively long time before

announcement (90 days), and that the magnitude of the

run up is much higher for the acquirer firm compared to the

target. Furthermore, conditional analyses show that state

and legal ownership has negative effects on insider return

profits in acquirers as hypothesized. This is consistent with

the rationale that state/legal owners tend to avoid insider

trading to avoid personal prosecution and liability and to

comply with state regulations. Mixed control firms show

positive effects on insider return profits for targets as

hypothesized.

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