Investment Banks as Insiders and the Market for Corporate Control

Posted: 24 Nov 2009

See all articles by Andriy Bodnaruk

Andriy Bodnaruk

University of Illinois at Chicago

Massimo Massa

INSEAD - Finance

Andrei Simonov

Michigan State University - Eli Broad Graduate School of Management; Russian Presidential Academy of National Economy and Public Administration (RANEPA); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: December 2009

Abstract

We study holdings in merger and acquisition (M&A) targets by financial conglomerates in which affiliated investment banks advise the bidders. We show that advisors take positions in the targets before M&A announcements. These stakes are positively related to the probability of observing the bid and to the target premium. We argue that this can be explained in terms of advisors who are privy to important information about the deal, investing in the target in the expectation of its price increasing. We document the high profits of this strategy. The advisory stake is positively related to the likelihood of deal completion and to the termination fees. However, these deals are not wealth creating: there is a negative relation between the advisory stake and the viability of the deal.

Keywords: G23, G32, G34

Suggested Citation

Bodnaruk, Andriy and Massa, Massimo and Simonov, Andrei, Investment Banks as Insiders and the Market for Corporate Control (December 2009). The Review of Financial Studies, Vol. 22, Issue 12, pp. 4989-5026, 2009. Available at SSRN: https://ssrn.com/abstract=1509898 or http://dx.doi.org/hhp043

Andriy Bodnaruk (Contact Author)

University of Illinois at Chicago ( email )

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Massimo Massa

INSEAD - Finance ( email )

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France
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+33 1 6072 4045 (Fax)

Andrei Simonov

Michigan State University - Eli Broad Graduate School of Management ( email )

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East Lansing, MI 48824-1122
United States

HOME PAGE: http://www.andreisimonov.com

Russian Presidential Academy of National Economy and Public Administration (RANEPA) ( email )

Vernadskogo Prospect 82
Moscow, 119571
Russia

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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