Abstract

http://ssrn.com/abstract=966202
 
 

References (33)



 
 

Citations (20)



 


 



Investment Banks as Insiders and the Market for Corporate Control


Andriy Bodnaruk


University of Illinois at Chicago

Massimo Massa


INSEAD - Finance

Andrei Simonov


Michigan State University - Eli Broad Graduate School of Management; Gaidar Institute for Economic Policy; Centre for Economic Policy Research (CEPR); SITE

December 2007

EFA 2007 Ljubljana Meetings Paper
AFA 2008 New Orleans Meetings Paper

Abstract:     
We study holdings in M&A targets by financial conglomerates which affiliated investment banks advise the bidders. We show that advisors take positions in the targets before M&A announcements. These stakes are positively related to the probability of observing the bid and to the target premium. We argue that this can be explained in terms of advisors, privy to important information about the deal, investing in the target in the expectation of its price to increase. We document the high profits of this strategy. We also document a positive relationship between the advisory stake and the deal characteristics. The advisory stake is positively related to the likelihood of deal completion and to the termination fees. However, these deals are not wealth-creating: there is a negative relation between the advisory stake and the viability of the deal. These results provide new insights into the conflicts of interest affecting financial intermediaries simultaneously advising on deals and investing in equities.

Number of Pages in PDF File: 48

Keywords: inside trading, risk arbitrage, mergers and acquisitions

JEL Classification: G34, G23, G32


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Date posted: March 1, 2007 ; Last revised: June 9, 2008

Suggested Citation

Bodnaruk, Andriy and Massa, Massimo and Simonov, Andrei, Investment Banks as Insiders and the Market for Corporate Control (December 2007). EFA 2007 Ljubljana Meetings Paper; AFA 2008 New Orleans Meetings Paper. Available at SSRN: http://ssrn.com/abstract=966202 or http://dx.doi.org/10.2139/ssrn.966202

Contact Information

Andriy Bodnaruk
University of Illinois at Chicago ( email )
1200 W Harrison St
Chicago, IL 60607
United States
Massimo Massa
INSEAD - Finance ( email )
Boulevard de Constance
F-77305 Fontainebleau Cedex
France
+33 1 6072 4481 (Phone)
+33 1 6072 4045 (Fax)

INSEAD Logo

Andrei Simonov (Contact Author)
Michigan State University - Eli Broad Graduate School of Management ( email )
645 N. Shaw Lane, 321 Eppley Center
East Lansing, MI 48824-1122
United States
HOME PAGE: http://www.andreisimonov.com
Gaidar Institute for Economic Policy ( email )
3-5 Gazetny Lane
Moscow, 125009
Russia
Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
SITE ( email )
P.O. Box 6501
S-113 83 Stockholm, 11383
Sweden
Feedback to SSRN


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