The Choice of Target's Advisor in Mergers and Acquisitions: The Role of Banking Relationship

Posted: 10 Dec 2008 Last revised: 6 Apr 2015

See all articles by Gianfranco Forte

Gianfranco Forte

Università degli Studi di Milano-Bicocca - Department of Business Administration, Finance, Management and Law

Giuliano Iannotta

Università Cattolica

Marco A. Navone

Finance Discipline Group - UTS Business School; Bocconi University - CAREFIN - Centre for Applied Research in Finance; Financial Research Network (FIRN)

Date Written: December 10, 2008

Abstract

In this paper we analyze the factors that influence the target companies' choice of a bank advisor during a merger or acquisition process. Particularly we analyze the choice of hiring an advisor in the first place (non trivial since for more than one third of the mergers in our sample the target company chose not to hire an advisor), and the choice to hire, as advisor, a bank with a strong prior relationship with the company. Using data on 473 M&A European transactions completed the 1994-2003 period we find evidence that the choice of the bank advisor depends on three main factors: i) the intensity of previous banking relationships of the target company, ii) the reputation of the bidder company's advisor, and iii) the complexity of the deal. We also investigate the impact of a bank advisor on shareholders' wealth. We find that the abnormal return of target companies' shareholders increases with the intensity of previous banking relationships, thus indicating a "certification role" of investment banks.

This paper is currently reserved to Carefin sponsors and will be made public on SSRN after a short embargo. Please visit the CAREFIN website to learn more on how to get the paper.

Keywords: Relationship banking, investment banking, mergers, acquisitions

JEL Classification: G21

Suggested Citation

Forte, Gianfranco and Iannotta, Giuliano and Navone, Marco A., The Choice of Target's Advisor in Mergers and Acquisitions: The Role of Banking Relationship (December 10, 2008). CAREFIN Research Paper No. 14/08. Available at SSRN: https://ssrn.com/abstract=1314195

Gianfranco Forte

Università degli Studi di Milano-Bicocca - Department of Business Administration, Finance, Management and Law ( email )

Edificio U7, IV piano
via Bicocca degli Arcimboldi
Milan, MI 8 - 20126
Italy

Giuliano Iannotta (Contact Author)

Università Cattolica ( email )

20123 Milano
Italy

Marco A. Navone

Finance Discipline Group - UTS Business School ( email )

Haymarket
Sydney, NSW 2007
Australia

Bocconi University - CAREFIN - Centre for Applied Research in Finance

Via Sarfatti, 25
Milan, 20136
Italy

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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