The regulation of insider dealing in the UK: some empirical evidence concerning share prices, merger bids and bidders' advising merchant banks

Stock market efficiency, insider dealing and market abuse: the UK experience

“…3 However, the empirical research does not fully substantiate such a belief. Barnes (1996) found that whilst there was some positive abnormal performance in bidder share prices prior to an announcement, this was not the case where shares only were offered as consideration. However, post-announcement abnormal performance data are significantly different for bids where only shares are offered.…”

“…Earlier studies showed that this occurs (and would be expected to occur) over a much longer period, say one month. For example, Barnes (1996) showed that during the 1987-1992 period, share prices of target firms increased by 31% over the period two months before the announcement to one month afterwards and 23% (almost three quarters of the total movement) occurred before the announcement. However, of that, a relatively small but nevertheless significant amount (2%) occurred prior to one month before the bid.…”

“…This estimate is unlikely to have changed. Barnes (1996) found that almost 75% of the rise in a target's share price at the time of a bid occurs before its announcement. When this was analysed between bidders' advising merchant banks, it was found that this occurred significantly earlier in the case of two major advisory firms than others, suggesting their association with the leakage.…”

Insider dealing and market abuse: The UK’s record on enforcement

“…This estimate is unlikely to have changed. Barnes (1996) found that almost 75 per cent of the rise in a target"s share price at the time of a bid occurs before its announcement. When this was analysed between bidders" advising merchant banks, it was found that this occurred significantly earlier in the case of two major advisory firms than others, suggesting their association with the leakage.…”

“…My own studies (Barnes, 1996(Barnes, , 2009) have used a much wider window, two months prior to the announcement. I found that share prices of target firms increased by 31 per cent over the period 2 months before the announcement to 1 month afterwards (it is usual for a premium of 30% to be offered to targets) and 23 per cent (almost three quarters of the total movement) occurred before the announcement.…”