Examining a large sample of acquisitions involving both listed (publicly traded) and unlisted (privately held firms or subsidiaries) lodging assets, this article reports that acquirers earn significant positive abnormal returns in both cases. However, these positive abnormal returns are primarily realized in deals involving unlisted targets. This remains true even after controlling for many deal and firm characteristics. Within the subset of acquisitions of unlisted targets, acquirer abnormal returns are significantly higher when relative size is greater, when at least some stock is tendered for the acquisition, and when the acquirer has not been active in acquisition in prior years.
We examine the phenomenon of insider silence, periods when corporate insiders do not trade. Our evidence strongly supports the jeopardy hypothesis that regulations inhibit insiders from trading on extreme information, implying a relation between insider silence and extreme future returns. First, insiders of merger targets refrain from buying in the months before the merger announcement, and insiders of bankruptcy firms refrain from selling before the bankruptcy filing. Second, among firms that are likely to have bad news, insider silence predicts significant negative future returns, which are even lower than when insiders net sell. Further, the negative information in insider silence is gradually incorporated into stock prices, and a significant portion of it is released around quarterly earnings announcements. Finally, the price inefficiency due to insider silence is pervasive, and market frictions make it worse.
We examine the phenomenon of insider silence, periods when corporate insiders do not trade. Our evidence strongly supports the jeopardy hypothesis that regulations inhibit insiders from trading on extreme information, implying a relation between insider silence and extreme future returns. First, insiders of merger targets refrain from buying in the months before the merger announcement, and insiders of bankruptcy firms refrain from selling before the bankruptcy filing. Second, among firms that are likely to have bad news, insider silence predicts significant negative future returns, which are even lower than when insiders net sell. Further, the negative information in insider silence is gradually incorporated into stock prices, and a significant portion of it is released around quarterly earnings announcements. Finally, the price inefficiency due to insider silence is pervasive, and market frictions make it worse.
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