The Choice of Target's Advisor in Mergers and Acquisitions: The Role of Banking Relationship
Posted: 10 Dec 2008 Last revised: 6 Apr 2015
Date Written: December 10, 2008
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.
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Keywords: Relationship banking, investment banking, mergers, acquisitions
JEL Classification: G21
Suggested Citation: Suggested Citation