Do Investment Banks Have Skill? Performance Persistence of M&A Advisors
AbstractWe document significant persistence in the average announcement returns to acquisitions advised by an investment bank. Advisors in the top quintile of returns over the past two years outperform the bottom quintile by 1.04% over the next two years, compared to a full-sample average return of 0.72%. Persistence continues to hold after controlling for the component of returns attributable to the acquirer. These results suggest that advisors possess skill, and contrast earlier studies which use bank reputation and market share to measure advisor quality and find no link with returns. Our findings thus advocate a new measure of advisor quality--past performance. However, acquirers instead select banks based on market share, even though it is negatively associated with future performance. The publication of league tables based on value creation, rather than market share, may improve both clients' selection decisions and advisors' incentives to turn away bad deals.
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Bibliographic InfoPaper provided by Ohio State University, Charles A. Dice Center for Research in Financial Economics in its series Working Paper Series with number 2009-14.
Date of creation: Jul 2009
Date of revision:
Find related papers by JEL classification:
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
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- Krzysztof Jackowicz & Oskar Kowalewski & Łukasz Kozłowski, 2011. "The Short and Long Term Performance Persistence in the Central European Banking Industry," Contemporary Economics, University of Finance and Management in Warsaw, vol. 5(4), December.
- De Jong, Abe & Ongena, Steven & van der Poel, Marieke, 2010.
"The international diversification of banks and the value of their cross-border M&A advice,"
CEPR Discussion Papers
7735, C.E.P.R. Discussion Papers.
- Jong, A. de & Ongena, S. & Poel, M. van der, 2010. "The International Diversification of Banks and the Value of their Cross-Border M&A Advice," Discussion Paper 2010-24, Tilburg University, Center for Economic Research.
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