n African Finance Journal - Insider trading law and illegal insider trading in South Africa's equity market : lessons from corporate takeovers




This study investigates whether JSE-listed takeover target companies earn abnormal returns in the run-up to public announcements of planned takeovers. We compute the average cumulative abnormal returns (ACAR) over 21 days preceding the announcement of a takeover for 57 takeovers occurring between January 2005 and June 2014 and then conduct interviews to offer insight into the causes of abnormal returns preceding each takeover announcement. Results indicate that shares in takeover target companies accumulate a significant ACAR (9.03%) during the 21 trading days prior to the first public announcement. Findings also suggest plausible legal explanations for abnormal returns, potentially contradicting suggestions in a strand of the literature that ACAR constitutes prima facie evidence of illegal insider trading. Yet, the high ACAR suggests evidence of information leaks prior to announcement, which casts doubt on the effectiveness of South African insider trading law.


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