Takeover Announcements and Illegal Insider Trading Activity: An Empricial Investigation of the Scandinavian Markets

Magnus Rakneberg Haug & Mikkel Behrens Mæhlum

Student thesis: Master thesis


The purpose of this thesis is to answer three main questions; does illegal insider trading occur prior to takeovers of Scandinavian-listed companies? If so, when is it more likely to occur? And thirdly, how can our findings be applied by authorities in their objective to uncover illegal insider trading? In order to investigate the occurrence of insider trading, we conduct an event study where we examine potential abnormal returns and abnormal trading volumes preceding the release of takeover news. Following the approach of MacKinlay (1997), the event study defines an estimation window, event window and postevent window, all set relative to the timing of the event of interest – the “event date”. For reliable and confident inference of our results the selected data is controlled for noise creating elements. We start with wide selection criteria and progress gradually more detailed on deal and company specifics until we obtain a representative sample of 263 takeover announcements in the initial sample and 207 announcements in an adjusted sample. The event study uncovers a significant run-up in both abnormal returns and abnormal trading volume prior to the event date, in line with the information leakage hypothesis. In addressing our second analysis, we find several statistical relationships between abnormal returns and specific deal and company characteristics, among them abnormal trading volume, target firm size, the number of advisors and the relative valuation of the target firm. Although some findings are in line with our initial expectations and hypotheses, we also observe the contrary and several differences across the three markets. Finally, we make several suggestions to future enforcement of insider trading laws and how our findings can be applied by authorities in their endeavour to prevent and uncover illegal insider trading prior to material events. We direct our focus towards the implementation of software robotics and how its superior processing power can be utilised to detect suspicious trades, automatically map networks and conduct ongoing run-up analyses. A vast majority of previous studies discussed in this paper have found evidence of illegal insider trading prior to acquisitions and this thesis is no exception. However, to the best of our knowledge, this thesis is the first to analyse insider trading in the Scandinavian markets. Thus, the contribution of this thesis is a validation of the methodology and findings of previous scholars, suggesting that illegal insider trading is not concentrated to select geographies but is a global concern.

EducationsMSc in Finance and Investments, (Graduate Programme) Final ThesisMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2019
Number of pages141