Law Firm Expertise and Merger and Acquisition Outcomes
Posted: 23 Jul 2012 Last revised: 8 Oct 2012
Date Written: June 10, 2012
Using a comprehensive sample of U.S. mergers and acquisitions (M&A) bids over 1990-2008, we document that top market share law firms are associated with a number of important bid outcomes and characteristics. Top bidder law firms are associated with significantly higher offer completion rates than other bidder law firms. In contrast, top target law firms are associated with significantly higher offer withdrawal rates than other target law firms. Top bidder and target law firms are both associated with significantly higher takeover premia than less prominent law firms. These associations are significant even after controlling for selection bias and major offer, bidder, and investment bank advisor characteristics. Our interpretation is that top bidder law firms have stronger incentives and abilities to facilitate deal completions, while top target law firms have stronger incentives and abilities to help realize higher takeover premia, consistent with their respective clients’ objectives, than is the case for other law firms. Our findings suggest that law firm market share is an important omitted variable in current economic models of M&A deal outcomes.
Keywords: M&A legal advisor, Law firms, market shares, incentives, top 10 law firms, M&A, mergers, acquisitions, market shares, league table ranks, deal completion, takeover premium, selection bias control
JEL Classification: G34
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