The influence of M&A advisors on pre-bid run-ups: A quantitative study of 225 Swedish public takeover bids between 1999 and 2017
Sammanfattning: Prior to public takeover bids there is generally an abnormal stock price increase in the target firm's stock price, referred to as a pre-bid run-up. Prior research has emphasised two explanations for pre-bid run-ups. One argues the market can anticipate the impending takeover bid based on public information, and the other argues the pre-bid run-up is attributable to illegal exploitation of insider information. In this study, we assess the magnitude of pre-bid run-ups on the Swedish equity markets between 1999 and 2017 and examine if the magnitude is influenced by the size of the corporate network of the bidder's M&A advisor. We find an average pre-bid run-up of 7.6% and a total abnormal return of 31.9% including the return on announcement day, indicating that 24.0% of the total abnormal return associated with the takeover bid occurs prior to public announcement. Further, we find that the magnitude of pre-bid run-ups increases significantly when the bidder in the takeover hires an M&A advisor with a large corporate network. We attribute this impact to the increased risk of insider information leakage resulting from having a large corporate network. This implies that the importance of information leakage in the assessment of pre-bid run-ups cannot be ruled out.
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