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Relationship Advisors Guiding Financially Weak Targets in M&A Deals: Conflict of Interest and Reputation Concerns

Author

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  • Nguyen, Hang Thi Dieu
  • Tsai, Hsiangping

Abstract

This study analyzes the impact of financially weak target firms engaging their relationship banks as M&A advisors, specifically current lender advisors and prior relationship advisors. We observe an increased likelihood of such targets hiring current lender advisors who connect them with acquirers with solid cash flows. However, engaging these advisors results in lower premiums and negative market perceptions, indicating possible conflicts of interest. Over time, these conflicts tend to decrease, revealing a growing discernment by the targets. In contrast, engaging prior relationship advisors does not seem beneficial, underscoring a potential drawback tied to outdated information.

Suggested Citation

  • Nguyen, Hang Thi Dieu & Tsai, Hsiangping, 2024. "Relationship Advisors Guiding Financially Weak Targets in M&A Deals: Conflict of Interest and Reputation Concerns," Finance Research Letters, Elsevier, vol. 61(C).
    • Handle: RePEc:eee:finlet:v:61:y:2024:i:c:s1544612324000436
    DOI: 10.1016/j.frl.2024.105013
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    Keywords

    M&As; Financial advisor; Financial weakness; Relationship bank;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • 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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