Abstract
Purpose - The purpose of this paper is to ascertain the efficacy of Financial Services and Markets Act (FMSA) (2000) in deterring illegal insider trading in target companies around the time of a merger and aquisition announcement.
Design/methodology/approach - The author uses an event study to measure the cumulative average abnormal returns (CAARs) around both the announcement and rumour date for a sample of UK takeovers between 2001 and 2010.
Findings - Statistically significant CAARs prior to the event date are observed across the sample.
Research limitations/implications - It is not possible to link unknown instances of illegal insider trading with pre takeover residuals, therefore explaining the residuals remains a deductive process.
Practical implications - Pre-event abnormal returns may indicate that trading on material nonpublic information is still a contributory factor in the run-up proportion of takeover premiums.
Social implications - This draws a question over the efficacy of the regulatory system. Originality/value - This study provides evidence which points to insider trading activity ahead of Mergers in a post FMSA 200 UK context.