Data/Methods: We apply event study methodologies, and examine cumulative abnormal returns (CAAR) in an event window of 60 days before the event date, which is the announcement of a POA. The event date is adjusted for the previous release of news about the OPA in the media. We compute a run-up index, which is the ratio of the CAAR in days [-60; -1] relative to the CAAR in days [-60; +1]. We study the explanatory power of a set of dummy variable, for the dependent variable “run-up”, estimating different specifications and using OLS and Stepwise regressions.
Results: We find that there are abnormal positive returns before the announcement date, as measured by the run-up index, although smaller then found in previous studies. A significant part of the run-up is explained by: (i) market anticipation triggered by legitimate sources of information, namely, rumors in the media about the possibility of a POA on the firm; (ii) by the percentage of capital owned in the target firm, by the offering firm. We not find direct evidence of insider trading causing the run-up, but this may be due to incomplete information.