Comparative Advantage, Industry Specialization, and the Role of Investment Banks in M&As

43 Pages Posted: 8 Nov 2014

See all articles by Michael Graham

Michael Graham

Stockholm University - School of Business

Terry S. Walter

University of Sydney; University of Technology, Sydney - School of Finance and Economics; Financial Research Network (FIRN)

Alfred Yawson

University of Adelaide; Financial Research Network (FIRN)

Huizhong Zhang

University of Adelaide - Business School

Date Written: April 6, 2012

Abstract

This paper examines the value added role of industry specialist advisors in M&A transactions using the Additive Revealed Comparative Advantage (ARCA) index to proxy advisors’ relative level of industry specialization prior to deal announcement. After controlling for endogeneity, we find that industry specialist advisors are able to generate higher returns for their acquirer clients, with the value creation resulting primarily from the selection of more synergistic targets and negotiating to pay a lower takeover premium. Additionally, while our results suggest specialist advisors are less likely to complete a deal, they are able to complete tender offers in less time. The findings are consistent with the traditional perception of the superiority of industry specialists and show that specialization is beneficial to the M&A advisory market. We find that specialist advisor charge lower fees, suggesting that in addition to superior advice, they are able to pass some cost efficiencies onto their bidder clients.

Keywords: Industry Specialist advisors; Comparative Advantage, Acquirers, Abnormal Returns, Advisory Fees, Deal Completion

JEL Classification: G14, G24, G34

Suggested Citation

Graham, Michael and Walter, Terry Stirling and Yawson, Alfred and Zhang, Huizhong, Comparative Advantage, Industry Specialization, and the Role of Investment Banks in M&As (April 6, 2012). Available at SSRN: https://ssrn.com/abstract=2520274 or http://dx.doi.org/10.2139/ssrn.2520274

Michael Graham

Stockholm University - School of Business ( email )

Roslagsvägen 1010
Stockholm, SE-106 91
Sweden
+ 46 8 674 7451 (Phone)

HOME PAGE: www.fek.su.se

Terry Stirling Walter

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

University of Technology, Sydney - School of Finance and Economics ( email )

Haymarket
Sydney, NSW 2007
Australia
+61 2 9514 3860 (Phone)
+61 2 9514 7711 (Fax)

HOME PAGE: http://datasearch.uts.edu.au/business/finance/staff/StaffDetails.cfm?UnitStaffId=5373

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Alfred Yawson (Contact Author)

University of Adelaide ( email )

No 233 North Terrace
Adelaide, South Australia 5005
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Huizhong Zhang

University of Adelaide - Business School ( email )

10 Pulteney Street
Adelaide, South Australia 5005
Australia

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