Does relationship matter? The choice of financial advisors
AbstractUsing a sample of U.S. mergers and acquisitions, this study evaluates how banking relationships influence acquirers’ choice of financial advisors. Specifically, it examines: i) acquirers’ previous relationships with advisors in various financial activities: M&A advisories, equity issuings and lending activities; ii) the optimism of analyst recommendations; and iii) how acquirers’ past satisfaction with their financial advisors determines the choice of financial advisors. Overall, the findings suggest that the influence of banking relationships on a firm’s choice of financial institutions is limited in the area of M&A advisory business. The implications from the traditional “relationship banking” studies may not be suitable to explain how firms choose advisors, due to the wide variety of practices in investment banking activities. The evidence portrays that firms with M&A experience are more likely to switch financial advisors with poor deal outcomes. Firms without M&A experience, on the other hand, are more likely to choose their underwriters as financial advisors, especially when they provide overly optimistic analyst coverage prior to the transactions.
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Bibliographic InfoPaper provided by Bank of Finland in its series Research Discussion Papers with number 28/2012.
Length: 56 pages
Date of creation: 18 Oct 2012
Date of revision:
mergers and acquisitions; financial advisors; relationship banking; analyst coverage; conflict of interests; proactive;
Find related papers by JEL classification:
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
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