Do Bidders Hire Top-Tier Investment Banks to Certify Value?
36 Pages Posted: 28 Jan 2002
Date Written: January 2002
We investigate why top-tier investment banks are hired to advise bidders in tender offers. Top-tier banks are not hired in complex transactions. They are hired by bidders with larger boards of directors, less concentrated equity ownership and less insider ownership. Additionally, announcement returns earned by the acquiror are not higher and long-term returns are lower if a top-tier bank is used. Finally, acquisitions advised by top-tier banks are more likely to be completed. Though our evidence is partly consistent with the hypothesis that firms hire top-tier investment banks to certify deal value, we argue that it is more consistent with an alternative hypothesis that they are hired by managers and directors with poorly-aligned incentives simply to ensure the deal is completed.
Keywords: Tender offers, investment bank incentive fee structure, pay-performance relationship, board composition, ownership structure, insiders
JEL Classification: G32, G34
Suggested Citation: Suggested Citation