More Insiders, More Insider Trading: Evidence from Private Equity Buyouts

Acharya, V V and Johnson, T (2007) More Insiders, More Insider Trading: Evidence from Private Equity Buyouts. Working Paper. London Business School IFA Working Paper.

Abstract

Recent takeover activity has been characterized by broader participation in acquiror ficing on both debt and equity sides. We focus on private equity buyouts, and investigate whether the number of ficing participants is related to the likelihood of insider trading prior to the bid announcement. Results suggest that more insiders leads to more insider trade. We study stock, option, bond and CDS markets. Suspicious stock and options activity is associated with more equity participants, while suspicious activity in the credit markets is associated with more debt participants. The results highlight an important channel in the flow of information and may be consistent with models of limited competition among informed insiders. They are unlikely to be consistent with models of optimal regulation.