Star-Crossed: The Dark Side of Star Analysts in Acquisitions

53 Pages Posted: 9 Nov 2017

See all articles by Gil Aharoni

Gil Aharoni

University of Melbourne; Financial Research Network (FIRN)

Bryan Lim

University of Melbourne - Department of Finance; Financial Research Network (FIRN)

Lubomir P. Litov

University of Oklahoma - Michael F. Price College of Business; University of Pennsylvania - Wharton Financial Institutions Center

Jordan Neyland

Antonin Scalia Law School - George Mason University

Date Written: October 18, 2019

Abstract

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

Aharoni, Gil and Lim, Bryan and Litov, Lubomir P. and Neyland, Jordan, Star-Crossed: The Dark Side of Star Analysts in Acquisitions (October 18, 2019). George Mason Law & Economics Research Paper No. 17-46. Available at SSRN: https://ssrn.com/abstract=3066968

Gil Aharoni

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

Bryan Lim

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

Financial Research Network (FIRN)

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

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

Lubomir P. Litov

University of Oklahoma - Michael F. Price College of Business ( email )

307 West Brooks
Norman, OK 73019-4004
United States

University of Pennsylvania - Wharton Financial Institutions Center

2306 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
United States

Jordan Neyland (Contact Author)

Antonin Scalia Law School - George Mason University ( email )

3301 Fairfax Drive
Arlington, VA 22201
United States

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