Lawyer Expertise and Contract Design – Evidence from M&A Negotiations
58 Pages Posted: 13 Mar 2015 Last revised: 30 Jan 2019
Date Written: January 28, 2019
Standard models of contract design abstract from individual differences in the ability to design contracts. In the context of mergers and acquisitions, we argue that the relative expertise of con-tracting parties strongly affects contractual outcomes. Using proprietary data on private acquisi-tions, we document that lawyers with higher expertise relative to their counterparties negotiate better risk allocation and target prices. We also find that the benefits of high expertise outweigh its costs, largely because high-expertise lawyers reduce the negotiation length. Our findings suggest a need for explicit modeling of contracting expertise, which is missing from the standard paradigm of optimal contracts.
Keywords: Contracting; M&A, Lawyers
JEL Classification: G34; K12
Suggested Citation: Suggested Citation