Do Bidders Hire Top-Tier Investment Banks to Certify Value?

36 Pages Posted: 28 Jan 2002

See all articles by Kimberly Rodgers Cornaggia

Kimberly Rodgers Cornaggia

Pennsylvania State University - Department of Finance

P. Raghavendra Rau

University of Cambridge

Date Written: January 2002

Abstract

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

Cornaggia, Kimberly Rodgers and Rau, P. Raghavendra, Do Bidders Hire Top-Tier Investment Banks to Certify Value? (January 2002). Purdue University Working Paper; AFA 2002 Meetings. Available at SSRN: https://ssrn.com/abstract=298172 or http://dx.doi.org/10.2139/ssrn.298172

Kimberly Rodgers Cornaggia

Pennsylvania State University - Department of Finance ( email )

306 Business Bldg
University Park, PA 16802
United States
814-865-2243 (Phone)
814-865-3362 (Fax)

HOME PAGE: http://directory.smeal.psu.edu/kjr15

P. Raghavendra Rau (Contact Author)

University of Cambridge ( email )

Cambridge Judge Business School
Trumpington Street
Cambridge, Cambridgeshire CB21AG
United Kingdom
3103626793 (Phone)

HOME PAGE: http://www.raghurau.com/

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