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Does relationship matter? The choice of financial advisors

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  • Francis, Bill B.
  • Hasan, Iftekhar
  • Sun, Xian

Abstract

This study evaluates whether and how relationships influence acquirers’ choice of financial advisors in mergers and acquisitions (M&As). Specifically, it examines how acquirers’ relationships with their advisors, including their optimism of analyst recommendations and the outcome of their past services, determine the choice of advisors in current transaction. Findings suggest that banking relationships have significant yet limited influence on a firm's choice of M&A advisor. The evidence reveals that firms without recent M&A experience are more likely to choose their underwriters as financial advisors in stock-paid deals, especially when they provide overly optimistic analyst coverage prior to the transactions. Firms with recent M&A experience, however, are more likely to switch financial advisors with poor outcomes in past deal(s).

Suggested Citation

  • Francis, Bill B. & Hasan, Iftekhar & Sun, Xian, 2014. "Does relationship matter? The choice of financial advisors," Journal of Economics and Business, Elsevier, vol. 73(C), pages 22-47.
  • Handle: RePEc:eee:jebusi:v:73:y:2014:i:c:p:22-47
    DOI: 10.1016/j.jeconbus.2013.12.002
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Morkoetter, Stefan & Wetzer, Thomas, 2015. "Conflicts of Interest and the Role of Financial Advisors in M&A Transactions: Empirical Evidence from the Private Equity Industry," Working Papers on Finance 1515, University of St. Gallen, School of Finance, revised Apr 2017.

    More about this item

    Keywords

    Mergers and acquisitions; Financial advisors; Relationship banking; Analyst coverage; Conflict of interests; Proactive;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • 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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