The Role of Investment Banker Directors in M&A: Can Experts Help?
City University of Hong Kong
University at Buffalo - School of Management
University of Iowa - Henry B. Tippie College of Business
July 1, 2011
Journal of Financial Economics (JFE), Forthcoming
We examine how directors with investment banking experience affect a firm’s acquisition behavior. We find that the presence of investment banker directors is associated with a higher probability of subsequent acquisitions, and such positive relation is not driven by reverse causality. Focusing on firms that make acquisitions, we find that acquirers with investment banker directors on the board have significantly higher announcement returns. The positive effect is more pronounced when the deal is more important and when the bankers’ experience and/or network is current. For the sample of large deals, we find that the presence of investment banker directors is associated with lower target announcement returns and takeover premium, consistent with the view that investment banker directors assist in determining and/or negotiating the price for their shareholders in important deals. In addition, we find financial advisory fees paid to outside advisors are significantly lower when there are investment bankers on the board. The presence of investment banker directors is also positively related to the long-run operating and stock performance. Overall, our results suggest that directors with investment banking experience can affect a firm’s acquisition policy and that they help firms make better acquisitions.
Number of Pages in PDF File: 47
Keywords: investment banker mergers and acquisitions
JEL Classification: G34, G30
Date posted: March 23, 2011 ; Last revised: August 13, 2013