Prior Client Performance and the Choice of Investment Bank Advisors in Corporate Acquisitions
53 Pages Posted: 11 Jul 2012 Last revised: 24 Jan 2014
Date Written: November 13, 2013
Contrary to earlier studies, we find that prior client performance is a significant determinant of the likelihood that an investment bank will be chosen as the advisor by future acquirers and that prior client performance is a significant determinant of the changes through time in banks’ shares of the advisory business. Further, we find that the changes in the market values of acquirers at the announcement of acquisition attempts are positively correlated with contemporaneous changes in the market values of their advisors. Two implications arise: (1) managers of acquiring firms consider advisors’ prior clients’ performance when choosing their advisors and (2) market forces work to align advisors’ and clients’ interests in the acquisition market.
Keywords: corporate control transactions, mergers, acquisitions, investment bank advisors
JEL Classification: G32, G34
Suggested Citation: Suggested Citation