Reputation-quality mechanism in the context of mergers and acquisitions : financial advisors, financial analysts and acquirer performance (original) (raw)

Advisor Skill and Acquisition Performance: Do Investment Bankers Make a Difference

Using a hand-collected dataset of investment banker turnovers between 1996 and 2003, we analyze the relationship between individual investment bankers and acquisition outcomes. We find that investment bankers have a statistically and economically significant association with announcement period returns, operating performance, and the long horizon stock returns of the acquirer. Investment bankers also have a significant association with deal completion time. In addition, firms with better corporate governance are more likely to be associated with bankers that have higher deal performance and faster completion time fixed effects. Bankers with Ivy League graduate degrees, multiple industry expertise, and more deal experience are associated with better deal performance, shorter deal completion times, and higher deal completion probabilities. Finally, we also find that investment bankers are associated with various deal characteristics. Our results suggest that the investment banker skill may be an important attribute for clients seeking deal advice. JEL classification: G24, G34

DOES THE COMMON ADVISOR CREATE VALUE IN MERGER AND ACQUISITION

Numerous deal of outcomes has chosen aftereffects of assessing the factors of merging firms' of a similar or discrete selection of mergers and acquisitions adviser. Common advisers seem to be preferred in economically functional ways after enormous example of acquisitions. We understand that agreement with common advisors take much time to accomplish and deliver fewer premiums to the targets after monitoring for further variables and accounting for endogeneity. We uncover certain indication of minor target estimations and upper bidder yields in such agreements. We present some indications presenting that deals with common advisers are fairly good and innovative for acquirers than for targets respects the conflict-of-interest assumption over the agreement enhancements when there is not any key variance in agreements' inclusive superiority. We did not get any proof that merging firms keep away from distributing advisers in the period of 1980s, but over the subsequent two eras, some effective and grow bigger verifications of such dodging have founded. As an evidence on mergers and acquisitions, between 1995 and 2006 nearly one-third of merging firms appointed boutique banks as their advisors. The study observes whether significant investment banks provide worth gains to their clients of merger and acquisition deals like a sample of 6,379. It catches that acquirers directed by tier one advisors lost not less than 42billion,whereasthoserecommendedbytier−twoadvisorsacquiredby42 billion, whereas those recommended by tier-two advisors acquired by 42billion,whereasthoserecommendedbytier−twoadvisorsacquiredby13.5 billion at the merger declaration. Due to tier-one advisors, the consequences were mostly driven by the huge loss agreements. The sign indicates that investment banks might have various incentives when they advise on big deals vs. small deals. The outcomes denote that market share grounded reputation league tables, could be ambiguous and therefore, the choice of investment banks should be grounded on their track record in creating gains to their customers.

The Choice of Target's Advisor in Mergers and Acquisitions: The Role of Banking Relationship

In this paper we analyze the factors that influence the target companies' choice of a bank advisor during a merger or acquisition process. Particularly we analyze the choice of hiring an advisor in the first place (non trivial since for more than one third of the mergers in our sample the target company chose not to hire an advisor), and the choice to hire, as advisor, a bank with a strong prior relationship with the company. Using data on 473 M&A European transactions completed the 1994-2003 period we find evidence that the choice of the bank advisor depends on three main factors: i) the intensity of previous banking relationships of the target company, ii) the reputation of the bidder company's advisor, and iii) the complexity of the deal. We also investigate the impact of a bank advisor on shareholders' wealth. We find that the abnormal return of target companies' shareholders increases with the intensity of previous banking relationships, thus indicating a "...

The Banking Relationship's Role in the Choice of the Target's Advisor in Mergers and Acquisitions

European Financial Management, 2010

We analyse the factors influencing the target company's choice of bank advisor in mergers and acquisitions (M&As). We first examine the choice of hiring an advisor, which is nontrivial, since in one-third of transactions our sample target companies did not hire one. We also analyse the choice to hire as advisor a bank with a strong prior relationship with the company (i.e., the main bank). Using data on 473 European M&A transactions completed in the period 1994-2003, we find evidence that the decision to hire an advisor depends on three main factors: (i) the intensity of the previous banking relationship, (ii) the reputation of the bidder company's advisor, and (iii) the complexity of the deal. We also investigate the impact of the bank advisor on shareholder wealth. We find that the abnormal returns of target company shareholders increase with the intensity of the previous banking relationship, thus indicating a 'certification role' on the part of investment banks.

An analysis of advisor choice, fees, and effort in mergers and acquisitions

Review of Financial Economics, 2003

This paper investigates the choice of financial advisors in mergers and acquisitions, the fees that the targets and the acquiring firms pay to these advisors, and the speed with which advisors complete transactions. Our sample includes 5337 merger deals announced during the period January 1995 to June 2000, that involved publicly traded targets and acquirers. We find that top-tier advisors are more likely to complete deals and to complete them in less time than lower tier advisors. However, the synergistic gains realized by the acquirers declined when top advisors were used. We also find that contingent fees play a significant role in expediting the deal completion. Surprisingly, we find that deals that are initiated by the advisors do not seem to take less time to complete. Our results suggest that the payment of larger advisory fees do not play an important role in determining the likelihood of completing the deal, but they are associated with greater acquisition gains realized by the acquirer. In addition, these synergistic gains are also associated with the switching by acquirers of their financial advisors within the same tier. D

Financial Analysts and Collective Reputation: Theory and Evidence

SSRN Electronic Journal, 2000

This paper studies the impact of collective reputation on the reporting strategy of experts that face con ‡icts of interest. The framework we propose applies to di¤erent settings involving decision makers that rely on experts for making informed decisions, in particular we consider sell-side …nancial analysts. We …nd that collective reputation has a non-monotonic e¤ect on the degree of information revelation. In general, truthful revelation is more likely to occur when there is more uncertainty on the average ability of analysts as a group. In particular, above a certain threshold, an increase in collective reputation always makes truthful revelation more di¢ cult to achieve. We test this theory by creating an index on the market's perception of the general reliability of analysts'recommendations. The empirical analysis provides evidence that collective reputation plays a role in determining the behaviour of analysts independently of their individual reputation.

Legal Advisors: Popularity Versus Economic Performance in Acquisitions

SSRN Electronic Journal, 2004

Law firms provide extensive intermediation in corporate acquisitions, including negotiation, certification, and drafting of contracts and agreements. Using a broad sample of U.S. acquisition offers, we find that large-market-share law firms are regularly called upon to facilitate completion of large, legally-complex offers. Complex offers are often withdrawn but, controlling for complexity, large-share law firms are associated with enhanced deal completion. Further, we document that some law firms are consistently associated with deal completion over time, and that acquirers with good deal completion experience use fewer different law firms. Acquirers" risk-adjusted returns, though, are smaller around announcements of offers advised by large-share law firms. Post-offer long-run returns of the acquirers are also lower and often negative following offers advised by large-share law firms. We find no evidence that particular law firms are consistently associated over time with strong returns. Our conclusion is that large law firms enhance deal completion in difficult situations, consistent with the aims of acquirer management. However, we find no systematic evidence that these popular law firms act as "gatekeepers" in the sense of not wanting to be associated with value-destroying deals.