The Direct Cost of Advice in M&A Transactions in the Financial Sector

20 Pages Posted: 20 Aug 2009 Last revised: 25 Aug 2018

See all articles by Rebel A. Cole

Rebel A. Cole

Florida Atlantic University

Kenneth R. Ferris

Arizona State University - School of Global Management and Leadership

Arie Melnik

University of Haifa - Department of Economics

Date Written: July 1, 2016

Abstract

Corporations do pay for legal and accounting advice whenever they face a major investment. For example companies that are involved in a merger activity often rely on external advice provided by accountants, legal experts, financial brokers etc. It is well known that mergers are heavy investments that entail large resources commitment. We use a special data set to analyze the cost of financial and accounting advice in merger situations. We find that the cost of advice are non-trivial, averaging over five million dollar per deal. The cost of merger advice explained a large share of the decline in acquiring-firm share holder wealth that is often observed in such transactions. We find that the primary determinants of these costs are the financial size of the deal and the complexity of the deal. We do not find that the method of payment for the acquisition itself affects the cost of the advice.

Keywords: advice, cost of advice, M&A, merger

JEL Classification: D40, G34

Suggested Citation

Cole, Rebel A. and Ferris, Kenneth R. and Melnik, Arie L., The Direct Cost of Advice in M&A Transactions in the Financial Sector (July 1, 2016). Available at SSRN: https://ssrn.com/abstract=1458465 or http://dx.doi.org/10.2139/ssrn.1458465

Rebel A. Cole

Florida Atlantic University ( email )

College of Business
777 Glades Road
Boca Raton, FL 33431
United States
1-561-297-4969 (Phone)

HOME PAGE: http://rebelcole.com

Kenneth R. Ferris

Arizona State University - School of Global Management and Leadership ( email )

Farmer Building 440G PO Box 872011
Tempe, AZ 85287
United States

Arie L. Melnik (Contact Author)

University of Haifa - Department of Economics ( email )

Haifa 31905
Israel

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