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Does Legal Counsel Expertise Add Value? Evidence from Mergers and Acquisitions

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  • Klasa, Sandy

    (University of Arizona)

  • Litov, Lubomir P.

    (University of Arizona and University of Pennsylvania)

  • Neyland, Jordan

    (University of Melbourne)

  • Sepe, Simone M.

    (University of Arizona and Toulouse School of Economics)

Abstract

We examine the role of legal counsel expertise in mergers and acquisitions. Using data for public target acquisitions from 1990 through 2010, we find that legal counsel with expertise in ERISA litigation, corporate law, or the acquirer's industry as well as high overall expertise in league tables are associated with lower acquisition premia, lower completion rates, higher acquirer announcement returns, and higher post-acquisition accounting performance. These effects appear to increase over time as deals become more complex and to be stronger for targets with greater earnings management, lower analyst coverage, higher idiosyncratic volatility, or greater indebtedness. Our results are robust to controls for the potential endogeneity of the legal counsel choice, addressed through instrumental variables analysis. Taken together, these results suggest an important economic role of legal counsel expertise in mergers and acquisitions.

Suggested Citation

  • Klasa, Sandy & Litov, Lubomir P. & Neyland, Jordan & Sepe, Simone M., 2013. "Does Legal Counsel Expertise Add Value? Evidence from Mergers and Acquisitions," Working Papers 13-27, University of Pennsylvania, Wharton School, Weiss Center.
    • Handle: RePEc:ecl:upafin:13-27
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