Star-Crossed: The Dark Side of Star Analyst Coverage in Acquisitions
53 Pages Posted: 9 Nov 2017 Last revised: 20 Oct 2019
Date Written: October 18, 2019
We examine the performance of acquirers who hire an advisor that employs a “star” analyst covering the target (i.e., “star-crossed” deals) and show that such deals have lower abnormal announcement returns (2.1%), lower total acquisition returns (8.9%), and greater subsequent goodwill impairments. Star-crossed bidder CEOs have shorter tenures, less acquisition experience, poor prior acquisition performance, and are as likely to be replaced as other poorly performing CEOs, suggesting that boards view such deals unfavorably. Star analysts suffer no reputational damage and retain star status after a star-crossed deal. Overall, our results suggest that advisors use star analysts’ reputations to garner advisory fees at the expense of their acquisition clients through star-crossed deals.
Keywords: analyst coverage, star analysts, M&A, goodwill, acquisition advisors
JEL Classification: G24, G34, K22, M41
Suggested Citation: Suggested Citation