Are Two Heads Better than One? The Role of Investment Banking Syndicates in M&As

62 Pages Posted: 11 Dec 2017

See all articles by Grant Richardson

Grant Richardson

Department of Accounting and Corporate Governance

Alfred Yawson

University of Adelaide; Financial Research Network (FIRN)

Huizhong Zhang

Queensland University of Technology - School of Economics and Finance

Date Written: December 5, 2017

Abstract

We examine the economic rationale for the use of investment banking syndicates in mergers and acquisitions. We find that syndicates are more likely to be hired in more complex transactions and in deals where acquirers have greater demand for external acquisition-related financing. Compared to individual financial advisors, syndicates produce higher abnormal returns, greater synergy gains, and lower takeover premiums in small to medsize transactions. The reverse is, however, true for syndicates advising on mega deals which are associated with more severe coordination and incentive problems. Further analysis indicates that the value destruction of syndicates in mega deals varies by syndicate structure, with the effect stronger among syndicates that face greater challenges to collaborate, i.e., when syndicate members are geographically dispersed, absent prior cooperation experience or are dominated by lower-tier financial advisors.

Keywords: Investment banking syndicates, Coordination and incentive problems, Acquirer abnormal returns, Takeover premium, Synergy gain

JEL Classification: G14, G24, G34

Suggested Citation

Richardson, Grant and Yawson, Alfred and Zhang, Huizhong, Are Two Heads Better than One? The Role of Investment Banking Syndicates in M&As (December 5, 2017). Available at SSRN: https://ssrn.com/abstract=3083269 or http://dx.doi.org/10.2139/ssrn.3083269

Grant Richardson

Department of Accounting and Corporate Governance ( email )

4 Eastern Road
North Ryde
New South Wales, NSW 2109
Australia

Alfred Yawson

University of Adelaide ( email )

No 233 North Terrace
Adelaide, South Australia 5005
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Huizhong Zhang (Contact Author)

Queensland University of Technology - School of Economics and Finance ( email )

GPO Box 2434
2 George Street
Brisbane, Queensland 4001
Australia

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