The Information Role of Advisors in Mergers and Acquisitions: Evidence from Acquirers Hiring Targets’ Ex-Advisors

54 Pages Posted: 14 May 2016 Last revised: 12 Jul 2018

See all articles by Xin (Simba) Chang

Xin (Simba) Chang

Nanyang Business School, Nanyang Technological University

Chander Shekhar

University of Melbourne; Financial Research Network (FIRN)

Lewis Tam

Faculty of Business Administration, University of Macau

Jiaquan Yao

Jinan University - Management School

Date Written: March 31, 2016

Abstract

We examine the information role of financial advisors by focusing on mergers and acquisitions in which acquiring firms hire target firms’ ex-advisors. We document that by employing targets’ ex-advisors, acquirers pay lower takeover premiums and secure a larger proportion of merger synergies. The corresponding targets exhibit lower announcement returns and are less likely to be propositioned by competing bidders. These results indicate that acquirers take advantage of value-relevant information about targets through targets’ ex-advisors, and achieve bargaining advantages in deal negotiations. In contrast, we document no discernible value effects when targets hire acquirers’ ex-advisors, suggesting that the information role of acquirers’ ex-advisors hired by targets is weaker than that of targets’ ex-advisors hired by acquirers.

Keywords: mergers and acquisitions, investment banking, advisory services, competition, bargaining

JEL Classification: G24, G34, L11

Suggested Citation

Chang, Xin and Shekhar, Chander and Tam, Lewis and Yao, Jiaquan, The Information Role of Advisors in Mergers and Acquisitions: Evidence from Acquirers Hiring Targets’ Ex-Advisors (March 31, 2016). Available at SSRN: https://ssrn.com/abstract=2779367 or http://dx.doi.org/10.2139/ssrn.2779367

Xin Chang

Nanyang Business School, Nanyang Technological University ( email )

S3-B1B-76 Nanyang Avenue
Singapore, 639798
Singapore

HOME PAGE: http://www.ntu.edu.sg/home/changxin

Chander Shekhar

University of Melbourne ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia

Financial Research Network (FIRN)

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

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

Lewis Tam (Contact Author)

Faculty of Business Administration, University of Macau ( email )

Room E22-4055, University of Macau
Avenida da Universidade
Taipa
Macau

Jiaquan Yao

Jinan University - Management School ( email )

No. 601, West Huangpu Road
Guangzhou, Guangdong 510632
China

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