How Social Connections and Information Leaks Affect the Stock Prices of Takeover  Targets

The stock prices of takeover targets typically increase substantially prior to merger announcements[1] This increase attracts considerable public attention because it is usually perceived to be associated with the leaking of inside information. Hence, the numerous  Securities and Exchange Commission (SEC) cases against individuals and entities accused of trading on inside information about upcoming mergers and acquisitions.

These cases typically involve suspected  leaks of confidential information through social connections. Senior executives or board members often initiate the leaks, which spread among the social networks that are either directly or indirectly linked to them. For example, in a case filed … Read more