Common institutional ownership and M&A insider trading: Governance or collusion?

Merger and acquisition (M&A) transactions are highly information sensitive, frequently making them insider trading targets, which undermines market fairness and stability. This paper examines how common institutional ownership affects insider trading in M&A through a 2010 to 2023 analysis of Chinese listed firms. The findings reveal that common institutional ownership significantly reduces insider trading during M&A events, thereby supporting the governance perspective of institutional investors. Mechanism analysis indicates that this effect functions by diminishing insiders' information advantages and enhancing internal controls. Moreover, the mitigating effect is more pronounced in firms with higher information asymmetry, lower investor attention, and greater insider ownership. This study contributes to the literature on institutional investor governance and offers critical insights for emerging markets aiming to mitigate illegal insider trading, optimize institutional ownership structures, and enhance regulatory frameworks.