Acquisitions and Insider Trading: The Chinese Experience

Alex Ng

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.

DOI : https://doi.org/10.21102/graf.2017.03.81.03