Legal Advisors: Popularity Versus Economic Performance in Acquisitions

48 Pages Posted: 26 Mar 2004

See all articles by C. N. V. Krishnan

C. N. V. Krishnan

Case Western Reserve University - Department of Banking & Finance

Paul A. Laux

University of Delaware - Alfred Lerner College of Business and Economics

Date Written: March 2007

Abstract

Law firms provide extensive intermediation in corporate acquisitions, including negotiation, certification, and drafting of contracts and agreements. Using a broad sample of U.S. acquisition offers, we find that large-market-share law firms are regularly called upon to facilitate completion of large, legally-complex offers. Complex offers are often withdrawn but, controlling for complexity, large-share law firms are associated with enhanced deal completion. Further, we document that some law firms are consistently associated with deal completion over time, and that acquirers with good deal completion experience use fewer different law firms. Acquirers' risk-adjusted returns, though, are smaller around announcements of offers advised by large-share law firms. Post-offer long-run returns of the acquirers' are also lower and often negative following offers advised by large-share law firms. We find no evidence that particular law firms are consistently associated over time with strong returns. Our conclusion is that large law firms enhance deal completion in difficult situations, consistent with the aims of acquirer management. However, we find no systematic evidence that these popular law firms act as gatekeepers in the sense of not wanting to be associated with value-destroying deals.

Keywords: Law firms, Market-share, Deal completion, Long-run returns

JEL Classification: G24

Suggested Citation

Krishnan, C. N. V. and Laux, Paul A., Legal Advisors: Popularity Versus Economic Performance in Acquisitions (March 2007). Available at SSRN: https://ssrn.com/abstract=520343 or http://dx.doi.org/10.2139/ssrn.520343

C. N. V. Krishnan (Contact Author)

Case Western Reserve University - Department of Banking & Finance ( email )

10900 Euclid Ave.
PBL 363
Cleveland, OH 44106-7235
United States
216-368-2116 (Phone)

HOME PAGE: http://weatherhead.case.edu/faculty/c-n-v-krishnan

Paul A. Laux

University of Delaware - Alfred Lerner College of Business and Economics ( email )

Office 306 Purnell Hall
Newark, DE 19716
United States
302-831-6598 (Phone)
302-831-3061 (Fax)

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