Do Investment Banks Matter for M&A Returns?
Board of Governors of the Federal Reserve System
London Business School - Institute of Finance and Accounting; University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)
December 20, 2010
Review of Financial Studies, Vol. 24, No. 7, pp. 2286-2315, July 2011
EFA 2007 Ljubljana Meetings Paper
We document a significant investment bank fixed effect in the announcement returns of an M&A deal. The inter-quartile range of bank fixed effects is 1.26%, compared to a full-sample average return of 0.72%. The results remain significant after controlling for the component of returns attributable to the acquirer. Our findings suggest that investment banks matter for M&A outcomes, and contrast earlier studies which show no positive link between various measures of advisor quality and M&A returns. Differences in average returns across banks are also persistent over time and predictable from prior performance. Clients do not chase past returns, which may explain why persistence exists in M&A performance while it is absent in mutual funds.
Number of Pages in PDF File: 41
Keywords: Investment Banking, Persistence, Mergers & Acquisitions
JEL Classification: G24, G34
Date posted: December 21, 2006 ; Last revised: December 7, 2011
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