The International Diversification of Banks and the Value of their Cross-Border M&A Advice

CentER Discussion Paper Series No. 2010-24

European Banking Center Discussion Paper No. 2010-03

42 Pages Posted: 22 Mar 2010 Last revised: 31 Jul 2015

See all articles by Abe de Jong

Abe de Jong

Rotterdam School of Management, Erasmus University; Monash University

Steven Ongena

University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)

Anjana Rajamani

Erasmus University - Rotterdam School of Management

Marieke van der Poel

Erasmus University - Rotterdam School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: July 30, 2015

Abstract

We examine the impact of the international diversification by banks on the value of their advice in 1,705 cross-border merger and acquisition transactions. We find that bidders engaging internationally diversified advisors face lower announcement returns. A one standard deviation increase in advisor diversification is associated with a 92 basis points lower announcement return for the bidder acquiring a listed target. The lower bidder returns are attributable to lower synergies of the deals being completed. Our evidence suggests that internationally diversified advisors offer lower quality advice to their clients since their reputational concerns are weakened by having access to multiple geographies from which they can derive fee-based income. We present further evidence that financial incentives in the form of advisor’s involvement in deal financing and market incentives in the form of the potential to gain market share in the bidder country may mitigate some of the negative effects of international diversification.

Keywords: Bank Diversification, Cross-Border Mergers and Acquisitions, Advisor Choice

JEL Classification: G24, G34

Suggested Citation

de Jong, Abe and Ongena, Steven R. G. and Rajamani, Anjana and van der Poel, Marieke, The International Diversification of Banks and the Value of their Cross-Border M&A Advice (July 30, 2015). CentER Discussion Paper Series No. 2010-24; European Banking Center Discussion Paper No. 2010-03. Available at SSRN: https://ssrn.com/abstract=1571022 or http://dx.doi.org/10.2139/ssrn.1571022

Abe De Jong

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T08-25
Rotterdam, 3000 DR
Netherlands
+31 10 408 1022 (Phone)

HOME PAGE: http://https://www.rsm.nl/people/abe-de-jong/

Monash University ( email )

900 Dandenong Rd
Room H3-56
Caulfield East, Victoria 3145
Australia

HOME PAGE: http://https://research.monash.edu/en/persons/abe-de-jong

Steven R. G. Ongena (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Anjana Rajamani

Erasmus University - Rotterdam School of Management ( email )

Rotterdam
Netherlands

Marieke Van der Poel

Erasmus University - Rotterdam School of Management ( email )

P.O. Box 1738
Room T09-43
Rotterdam, 3000 DR
Netherlands
+31 10 4081528 (Phone)
+31 10 4089017 (Fax)

HOME PAGE: http://www.rsm.nl/mvanderpoel

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