Advisor-hedge fund connections and M&A Pricing: Who benefits from information flow?

45 Pages Posted: 30 Sep 2022 Last revised: 6 Mar 2025

See all articles by Michael Bowe

Michael Bowe

University of Manchester

Olga Kolokolova

Lancaster University Management School

Lijie Yu

The University of Manchester - Alliance Manchester Business School

Date Written: March 06, 2025

Abstract

Using a sample of 2,117 US public M&A transactions from 2000 to 2019, we find evidence suggesting that bidders' advisors may share information about upcoming deals with connected hedge funds in exchange for implicit support of offer prices. Unexpected positions in target firms taken by hedge funds with prime brokerage ties to bidders' advisors before deal announcements are associated with lower premiums and reduced target abnormal returns, particularly for targets with high information asymmetry. This effect weakens when hedge funds can more independently identify potential targets or when bidders’ advisors hold shares in targets.

Keywords: Investment banking, Short-term hedge funds, Information asymmetry, Information leakage, Mergers and acquisitions

JEL Classification: G23, G24, G34

Suggested Citation

Bowe, Michael and Kolokolova, Olga and Yu, Lijie, Advisor-hedge fund connections and M&A Pricing: Who benefits from information flow? (March 06, 2025). Available at SSRN: https://ssrn.com/abstract=4228508 or http://dx.doi.org/10.2139/ssrn.4228508

Michael Bowe

University of Manchester ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom
+44 161 306 3407 (Phone)
+44 161 275 4023 (Fax)

Olga Kolokolova

Lancaster University Management School ( email )

Bailrigg
Lancaster, LA1 4YX
United Kingdom

Lijie Yu (Contact Author)

The University of Manchester - Alliance Manchester Business School ( email )

199 Cathedral Street
Glasgow, Glasgow G4 0QU
United Kingdom

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