Are Good Financial Advisors Really Good? The Performance of Investment Banks in the M&A Market
19 Pages Posted: 4 Jul 2008 Last revised: 9 Jan 2015
Date Written: January 1, 2010
The study examines whether prestigious investment banks deliver quality gains to their clients in a sample of 6,379 US M&A deals. It finds that acquirers advised by tier-one advisors lost more than $42 billion, whereas those advised by tier-two advisors gained $13.5 billion at the merger announcement. The results were mainly driven by the large loss deals advised by tier-one advisors. The evidence indicates that investment banks might have different incentives when they advise on large deals vs. small deals. The findings were consistent with the superior deal hypothesis as tier-one target advisors outperformed tier-two advisors and the existence of a prestigious advisor on at least one side of an M&A transaction resulted in higher wealth gains to the combined entity. Target advisors were able to extract more wealth gains for their clients, which led to higher combined gains at the expense of the acquirer.
Keywords: Investment banks, Prestigious, Gains, Mergers and acquisitions
JEL Classification: G34
Suggested Citation: Suggested Citation