Going Private Proposals, Trading, and Price

As regular readers of this blog will be aware, I am currently doing some research on Chinese companies going private from the US exchanges with my colleague Jens Ørding Hansen. During this process we have collected some data that, while not fitting into the overall narrative of our paper, is nonetheless very interesting.

One of these interesting sets of data regards what happens in the trading of these companies leading up to the going private proposal. We looked at the data in a few different ways, and found what appears to be indications of “information leakage”.

Jens then took the time to actually compile this data into some very useful and informative graphs that we believe will interest some readers.

Firstly, we looked at the difference between prices leading up to the proposal and the price development on the proposal date.

As we can see here there are some interesting developments in the price of some of these equities before the actual proposal to go private, to the extent that we sometimes even see large increases pre-proposal followed by negative reactions to the actual proposal.

Looking more closely at the developments leading up to the proposal we decided to split the data into the 7 days leading up to the proposal and the day prior to the proposal. As we have already seen some evidence of abnormal price increases, and there is already some documented evidence of options trading spikes leading up to going private proposals, we decided to look at trading volumes.

Starting with the average trading volume for the 7 days leading up to the proposal, we see some abnormal trading patterns emerging.

These patterns get more extreme if we look at what happens on the day prior to the going private proposal, this is also where we see some of the most interesting gains in stock price.

Some of the price increases and increases in trading volume we see in these companies would suggest that there may indeed have been information about the impending proposal leaking through to investors prior to the announcement. However, it must be said that caution should be used when interpreting these numbers as we did not have enough data available on the companies to compare all the relevant data points. However, there is still enough data here to show that something quite interesting has been happening leading up to some of these going private deals.