Value of Your IPO Advisor's Advice: M&A Perspective

24 Pages Posted: 6 Mar 2008

See all articles by Evgeny Plaksen

Evgeny Plaksen

Ecole Polytechnique Fédérale de Lausanne

Date Written: January 2008

Abstract

This paper addresses the role of financial advisors in firms' acquisition activities. Motivated by anecdotal and documented evidence on the cases of fee generating motives in advisory business, we test whether the better established contacts of investment bankers with firm's executives can boost the phenomenon of chasing deals and lead to value destruction at acquisitions.

We investigate whether closer contacts between conflicted investment bankers and corporate management established at IPO, lead the firms to perform acquisitions characterized with negative market reaction. Bankers, who have underwritten company's IPO issue, have preferential access to its corporate executives, in that the banks can identify and pitch potential takeover targets deliberately and insistently. In line with the fee generating hypothesis, we find that the abnormal returns at acquisitions are lower for firms that went public with banks actively advising on M&A, and when the underwriter's current M&A business is deteriorating.

Keywords: investment banking, mergers and acquisitons, IPO underwriters, relationship banking

JEL Classification: G24, G34, G14

Suggested Citation

Plaksen, Evgeny, Value of Your IPO Advisor's Advice: M&A Perspective (January 2008). Paris December 2007 Finance International Meeting AFFI-EUROFIDAI Paper, AFA 2009 San Francisco Meetings Paper, Available at SSRN: https://ssrn.com/abstract=1102780 or http://dx.doi.org/10.2139/ssrn.1102780

Evgeny Plaksen (Contact Author)

Ecole Polytechnique Fédérale de Lausanne ( email )

c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

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