Advisor-Hedge Fund Connections, Information Flows and Deal Outcomes in Mergers and Acquisitions

98 Pages Posted: 30 Sep 2022 Last revised: 8 Nov 2022

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: November 07, 2022

Abstract

This paper examines the impact of investment banks' prime brokerage connections to hedge funds on the choice of an advisor and the deal outcome in M&As. Acquirers are more likely to choose advisors connected to hedge funds that hold equity in the target before the deal announcement. Such connections reduce deal duration, increase the likelihood of deal completion, and increase the acquirer abnormal return when target firms are characterised by a high degree of information asymmetry, suggesting an 'indirect toehold' mechanism of information transmission.

Keywords: Choice of advisor, relationship banking, hedge fund holdings, indirect toehold, information advantage, mergers and acquisitions

JEL Classification: G23, G24, G34

Suggested Citation

Bowe, Michael and Kolokolova, Olga and Yu, Lijie, Advisor-Hedge Fund Connections, Information Flows and Deal Outcomes in Mergers and Acquisitions (November 07, 2022). 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 )

Booth Street West
Manchester, M15 6PB
United Kingdom

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