Run-up of Acquirer’s Stock in Public and Private Acquisitions*

Acquisition announcements generate predictable movements in the price of the acquirer’s stock. For example, post-announcement returns are typically negative for high Tobin’s q acquirers, stock transactions, and foreign targets, but positive for private equity-backed private targets. Pre-announcement trading of acquirer’s stock is more likely to be attributable to insider trading when the pre-announcement price changes match the expected post-announcement acquirer returns. Based on a sample of Canadian acquirers and public and private acquisition targets from Canada, the U.S. and 31 other countries over the years 1991-2008, we find evidence consistent with insider trading of acquirer’s stock. This evidence, however, is limited to specific situations and is far from generalizable to all types of acquisition announcements. Our findings have policy implications for the allocation of surveillance efforts for initiating insider trading investigations.