Law Firm Reputation and Mergers and Acquisitions

Abstract:     
Using a comprehensive sample of M&A offers over 1990-2008, we find that more reputable law firms significantly affect M&A offer outcomes, even after controlling for offer, bidder and investment bank characteristics. Top bidder legal advisors are associated with significantly higher deal completion rates than other legal advisors. In contrast, top target legal advisors are associated with significantly higher deal withdrawal rates than other legal advisors. Top bidder and target law firms are both associated with significantly higher takeover premia in completed deals than less prominent law firms. Our interpretation is that top bidder law firms have incentives to complete deals even in the face of higher takeover premia, while top target law firms have incentives to obtain higher takeover premia in completed M&A deals. These offer outcomes appear to be associated with certain offer characteristics that law firms can influence: (a) the incidence of target termination fee provisions, which are significantly associated with both top bidder and target legal advisors and (b) tender offers, which top bidder legal advisors are significantly associated with compared to less prominent legal advisors. Perhaps in anticipation of higher premia, bidder announcement-period stock-price reactions are significantly more negative for offers involving a top bidder or target legal advisor. Interestingly, we do not find evidence to suggest that bidder announcement effects significantly influence deal completion rates; but top M&A law firms do.

Keywords: Law firms, M&A, reputation, law firm reputation, M&A law firms, deal lawyers, mergers, acquisitions, M&A legal advisors, market shares, league tables, deal completion, takeover premium, announcement period return, acquisition premium

JEL Classifications: G34

Working Paper Series