Are investors compensated for their sophistication and informedness for company takeovers – An Australian study

I determine the sophistication and information level in takeovers for four investor classes which are individuals, nominees (fund managers), superannuation (pension) funds and incorporated companies. I also calculate their takeover returns. I find that the superannuation funds are informed and sophisticated; individuals are informed but unsophisticated; nominees are uninformed but sophisticated; and incorporated companies are uninformed and unsophisticated traders, and that the investors realise a return which is commensurate with their information and sophistication. This study improves on existing takeover return research which assumes, as a group, institutions are synonymously informed and sophisticated, and individuals are synonymously unsophisticated and uninformed.