Kavousanos, Emmanuel
Previous studies show that corporate insiders engage in profitable transactions by trading securities of their own firms around specific events (e.g. mergers, acquisitions, issue of debt, issue of equity, dividends, etc).This thesis investigates the behavior of abnormal returns and abnormal trading volume around three events: mergers, issue of debt and dividends, for firms listed in the LSE (London Stock Exchange) and in ASE (Athens Stock Exchange). We consider these events given that they introduce important changes to the firms involved and due to the fact that they seem to have great impact to the firms’ value. The examination of the LSE and ASE was considered during to the difference in legislation during the period examined 2000-2005 and in the market size. ASE is a newly classified developed market, highly evolving, whose legislative framework during that period was lighter than the one adopted in the LSE. Contrary the LSE is a mature international stock exchange market with tighter legislative framework. Thus, the examination of two different markets could result in different outcomes. To our knowledge, this is the first time that the effect of merger, issue of debt and dividend announcements on abnormal returns and abnormal volume of firms listed in the ASE is addressed. Additionally, this is the first evidence for the LSE regarding the effect of issue of debt to the trading volume of the firm. To begin with, we examined whether there is evidence of excess returns earned by investors prior to the first public announcement of planned mergers in the UK and Greek stock exchange markets. The study reassesses results for the LSE market and for the first time addresses the issue for the ASE market. The main finding, regarding merger announcements, is that this kind of information is a poorly held secret; however, results differ according to whether the firm is a target or an acquirer and according to the market in which the firm is listed. In fact, there seems to be abnormal returns prior to merger announcements in the ASE, regardless of whether the firm is a target or an acquirer. The case is different in LSE: while insiders do not seem to exploit their information when in acquirer firms; they seem to do so when in target firms. In fact, we find that the abnormal returns of the acquiring firm around the merger announcement are negative, suggesting that the market considers the merger not value adding event and that the acquiring firm’s size is efficient not in need of further development. This is not the case, though, for target firms. Given that the size of the firm is smaller than that of the acquirer firm in LSE, the market views the merger as a good event for the firm, thus responding with positive abnormal returns around the announcement date. A second event examined by the thesis relates to corporate debt offerings for companies listed in ASE and LSE. We find that for the ASE there are negative abnormal returns prior to the announcement of debts’ issuance during period 2000 through 2005. The negative results indicate that debt issuance conveys unfavorable information in line with Myers and Majluf (1984) and therefore insiders do not seem to trade on this information. According to the pecking order theory (Myers and Majluf (1984)), a firm should finance its projects with its internally generated funds whenever possible. If external financing is needed, the firm should issue debt first and equity as a last resort only, i.e. when all short-term and long-term borrowing possibilites have been exhausted. This pecking order of financing results from the information asymmetry between management and investors, which induces the latter to undervalue the issuing firm’s securities, this undervaluation being greater for equity. In contrast the issue of debt by companies listed in the LSE has a negative effect on cumulative abnormal returns (CAR) after the announcement date, while prior to that announcement the values of CAR are mostly positive, suggesting insider trading activity. Finally, this thesis deals with another possible insider leakage dividend announcements. This study confirms in almost all cases what is already known. Good news is followed by stock price increases, bad news is followed by stock price decreases. In general, stock prices adjust quickly to published information supporting the semi-strong form of efficient market hypothesis. Insider trading seems to exist at least for some days before the announcement date. These results are enforced by the trading volume of each category of firm in the markets.
Χρηματιστήριο του Λονδίνου
Efficient capital markets
Insider Trading
London Stock Exchange
Athens stock exchange
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