Does target firm insider trading signal the target's synergy potential in mergers and acquisitions?

We find that the acquirer's (1) abnormal returns at merger and acquisition (M&A) an-nouncements and (2) long-term abnormal returns after acquisitions increase with tar -get firm insiders' net purchase ratios. Further, acquisition synergies, measured as the (1) acquirer-target combined cumulative abnormal returns at M&A announcements and (2) changes in three-year operating performance after acquisitions, increase with target in-sider net purchase ratios. Notwithstanding, targets with higher insider net purchase ratios receive higher takeover premiums. Overall, our findings suggest that, even under the SEC's "short-swing rule," target insider trading prior to the M&A announcement serves as a cred-ible signal for acquisition outcomes. (c) 2021 Published by Elsevier B.V.