Lawyer Expertise and Contract Design – Evidence from M&A Negotiations

58 Pages Posted: 13 Mar 2015 Last revised: 30 Jan 2019

See all articles by Christel Karsten

Christel Karsten

Strategy&

Ulrike Malmendier

University of California, Berkeley - Department of Economics; University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)

Zacharias Sautner

Frankfurt School of Finance & Management; European Corporate Governance Institute (ECGI)

Date Written: January 28, 2019

Abstract

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

Karsten, Christel and Malmendier, Ulrike and Sautner, Zacharias, Lawyer Expertise and Contract Design – Evidence from M&A Negotiations (January 28, 2019). Available at SSRN: https://ssrn.com/abstract=2576866 or http://dx.doi.org/10.2139/ssrn.2576866

Christel Karsten

Strategy& ( email )

Germany

Ulrike Malmendier

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
(510) 642-8724 (Phone)
(510) 642-6615 (Fax)

HOME PAGE: http://www.econ.berkeley.edu/~ulrike/

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

HOME PAGE: http://www.iza.org/en/webcontent/personnel/photos/index_html?key=918

Zacharias Sautner (Contact Author)

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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