Securities industry

Information leakage before full acquisitions has been widely documented. The information leakage, and the resulting pre-bid runup in the target's stock, generally increases the total cost of the acquisition. That is, information leakage and the ensuing pre-bid runup is a gain to the target and loss to the acquirer. Herein, I first ascertain the characteristics of full acquisitions that affect the amount of information leakage. I find that if the acquirer borrows to finance the acquisition then information leakage is greater. Further if the acquirer is foreign, if the target is a high-tech firm, and if the target has options on its stock all increase information leakage. I find hostile deals are effective in reducing information leakage. Lastly, information leakage increases in the percentage of managerial ownership. I next hypothesize that the identity and intent of partial acquirers is known to market participants before the announcement of a partial acquisition. I find that the market can anticipate whether a partial acquirer intends to fully-acquire or take an active role in the management of the target. Also, the market anticipates whether the acquirer is a private investment find or a non-financial corporation. Further, the acquirer's identity or intent is fully reflected in the target's stock price before the announcement of the partial acquisition. These results help explain why there are few partial acquisitions as precursors to full acquisitions.

A generally illegal form of short selling in United States equity markets, called "naked shorting," occurs when a seller of stock sells shares that do not exist. This type of short selling has negative consequences that result from the tactic's ability to be used as a tool to artificially inflate an issuer's stock supply, which introduces significant harm to the integrity of the market's natural forces of supply and demand. Newly adopted amendments to the Securities and Exchange Commission's short sale governance regulation, called Regulation SHO, required the mandatory purchasing of shares by certain market participants in order for those participants to close-out previously excused delivery failures, called "grandfathered" failures. This study examines the consequences of this new regulation, in terms of share price and volume, for those few securities that had the most persistent delivery failure problems. Because the regulation mandates the purchase of shares by certain influential market participants, I examine if the stock markets of these securities exhibited unusual volatility which may be indicative of the market maker trying to cover at low cost. Using technical analysis techniques, such as volume surge detection (using moving volume averages), the performance of the target securities will be compared with appropriate benchmark indices for the purpose of detecting unusual activity. Unusual activity may be consistent with my hypothesis that market makers may encourage additional volatility to cause liquidity problems for marginal investors which forces them to sell part or all of their position. As discussed in great detail, the extra marginal shares injected into the market by the action of forced selling by these marginal investors may be used by the market makers to lower their cost of regulation compliance.