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The information role of advisors in mergers and acquisitions: Evidence from acquirers hiring targets’ ex-advisors

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  • Chang, Xin
  • Shekhar, Chander
  • Tam, Lewis H.K.
  • Yao, Jiaquan

Abstract

We examine the information role of financial advisors by focusing on mergers and acquisitions in which acquiring firms hire target firms’ ex-advisors. We document that by employing targets’ ex-advisors, acquirers pay lower takeover premiums and secure a larger proportion of merger synergies. The corresponding targets exhibit lower announcement returns and are less likely to be propositioned by competing bidders. These results indicate that acquirers take advantage of value-relevant information about targets through targets’ ex-advisors, and achieve bargaining advantages in deal negotiations. In contrast, we document no discernible value effects when targets hire acquirers’ ex-advisors, suggesting that the information role of acquirers’ ex-advisors hired by targets is weaker than that of targets’ ex-advisors hired by acquirers.

Suggested Citation

  • Chang, Xin & Shekhar, Chander & Tam, Lewis H.K. & Yao, Jiaquan, 2016. "The information role of advisors in mergers and acquisitions: Evidence from acquirers hiring targets’ ex-advisors," Journal of Banking & Finance, Elsevier, vol. 70(C), pages 247-264.
  • Handle: RePEc:eee:jbfina:v:70:y:2016:i:c:p:247-264
    DOI: 10.1016/j.jbankfin.2016.05.006
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    More about this item

    Keywords

    Mergers and acquisitions; Investment banking; Advisory services; Competition; Bargaining;

    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
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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