Trading volume around announcements of mergers and acquisitions

Abstract

This study investigates the volume reaction to merger and acquisition (M&A) announcements for acquiring firms. It identifies the method of payment, target ownership, firm size and the relative size of acquisitions as important cross-sectional determinants of the volume reaction. This research is important because volume is a fundamental attribute of securities markets. Moreover, the analysis of trading volume and its determinants provides insights about which M&A attributes cause investor disagreement about the value of M&A activities.

Keywords:

• mergers and acquisitions
• trading volume
• acquirer
• investor disagreement

JEL Classification:

• G14
• G34

Acknowledgement

I thank Eugene Pilotte and Andrei Nikiforov for their contributions to this article.

Notes

¹ The exceptions mostly focus on investigations of insider trading in the target firm before M&A announcements (e.g., Keown et al., 1992).

² CAR is estimated using the market model and the equally weighted index. Market model parameters are estimated over the 255-day window ending 46 trading days before the announcement.

³ All continuous variables, with the exception of CAR, are winsorized at the 1st and 99th percentiles to control for the influence of outliers.