When It Pays to Pay Your Investment Banker: New Evidence on the Role of Financial Advisors in M&As
University of Toronto - Rotman School of Management
University of Surrey - Surrey Business School
Nickolaos G. Travlos
ALBA Graduate Business School
November 15, 2011
Journal of Finance, Forthcoming
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.
Number of Pages in PDF File: 60
Keywords: Investment Banks, Reputation, Mergers and Acquisitions, Abnormal Returns, Advisory Fees, Deal Completion, Self-Selection Bias, Organizational Form
JEL Classification: G14, G24, G34
Date posted: March 10, 2010 ; Last revised: November 16, 2011
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