When It Pays to Pay Your Investment Banker: New Evidence on the Role of Financial Advisors in M&As
60 Pages Posted: 10 Mar 2010 Last revised: 16 Nov 2011
Date Written: November 15, 2011
We provide new evidence on the role of financial advisors in M&As. Contrary to prior studies, top-tier advisors deliver higher bidder returns than their non-top-tier counterparts but in public acquisitions only, where the advisor reputational exposure and required skills set are relatively larger. This translates into 65.83 US$ million shareholder gain for an average bidder. The improvement comes from top-tier advisors’ ability to identify more synergistic combinations and to get a larger share of synergies to accrue to bidders. Consistent with the premium price – premium quality equilibrium, top-tier advisors charge premium fees in these transactions.
Keywords: Investment Banks, Reputation, Mergers and Acquisitions, Abnormal Returns, Advisory Fees, Deal Completion, Self-Selection Bias, Organizational Form
JEL Classification: G14, G24, G34
Suggested Citation: Suggested Citation