Industry Expertise, Information Leakage, and the Choice of M&A Advisors
Xin (Simba) Chang
Cambridge Judge Business School; Nanyang Business School
University of Melbourne; Financial Research Network (FIRN)
Faculty of Business Administration, University of Macau
February 15, 2015
24th Australasian Finance and Banking Conference 2011 Paper
This paper examines the impacts of M&A advisors’ industry expertise on firms’ choice of advisors in mergers and acquisitions. We show that an investment bank's expertise in merger parties’ industries increases its likelihood of being chosen as an advisor, especially when the acquisition is more complex, and when a firm in M&A has less information about the merger counterparty. However, due to the concerns about information leakage to industry rivals through M&A advisors, acquirers are reluctant to share advisors with rival firms in the same industry, and they are more likely to switch to new advisors if their former advisors have advisory relationship with their industry rivals. In addition, we document that advisors with more industry expertise earn higher advisory fees and increase the likelihood of deal completion.
Number of Pages in PDF File: 48
Keywords: Investment banking; Mergers and Acquisitions; Advisory Fees; Advisory Services; Industry Expertise
JEL Classification: G24, G34, L11
Date posted: August 20, 2011 ; Last revised: February 16, 2015
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