Abstract
This paper investigates the impact of cross-border M&As on insider trading in target firm stocks and options prior to bid announcements. Using insider trading metrics developed in Acharya and Johnson (2010), we find that the likelihood of insider trading is significantly higher in cross-border deals than in domestic deals in a global sample of M&As from 52 countries announced between 1991 and 2014. The difference remains after we match target firms by industry and firm size and control for the number of advisors and the presence of rumours. The difference is mainly driven by cross-border deals where the acquirer is from a country with high corruption and low social norms as measured by survey results on tolerance for tax avoidance and lying in one’s own interests and where the target is in a country with strict enforcement of insider trading laws. Our evidence suggests that current enforcement of inside trading laws is less effective at deterring inside trading in cross-border deals than domestic deals and calls for closer cooperation among regulators from different countries to maintain market integrity in the era of globalization.
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