This paper provides evidence of excess returns earned by investors in acquired firms prior to the first public announcement of planned mergers. The study is distinguished from earlier merger studies in its use of daily holding period returns for the 194 firms sampled. The results confirm statistically what most traders already know. Impending merger announcements are poorly held secrets, and trading on this nonpublic information abounds. Specifically, leakage of inside information is a pervasive problem occurring at a significant level up to 12 trading days prior to the first public announcement of a proposed merger.

Over the two‐year period prior to the bankruptcy announcement, insider trading is significantly greater for OTC bankrupt firms, but not for exchange‐listed firms, than for an industry‐size matched sample of nonbankrupt firms. In addition, the level of insider selling increases over the final five months leading to the first public announcement of OTC firms. Finally, firms displaying the most negative price reaction over the announcement period are found to have a significantly larger proportion of insider selling than other firms.

Over the two-year period prior to the bankruptcy announcement, insider trading is significantly greater for over-the-counter bankrupt firms, but not for exchange-listed firms, than for an industry-size matched sample of nonbankrupt firms. In addition, the level of insider selling increases over the final five months leading to the first public announcement of over-the-counter firms. Finally, firms displaying the most negative price reaction over the announcement period are found to have a significantly larger proportion of insider selling than other firms.