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Conflicts of Interest and the Role of Financial Advisors in M&A Transactions: Empirical Evidence from the Private Equity Industry

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  • Morkoetter, Stefan
  • Wetzer, Thomas

Abstract

Financial advisors play an important role in M&A transactions. Private equity (PE) firms, in turn, are highly sought-after clients for financial advisors as they promise lucrative business due to their frequent engagements in acquisitions. We find that PE firms pay, on average, less for portfolio companies when their sell-side advisor has worked for the acquiring PE firm on the buy-side in past transactions. We refer to this as indirect relationships and argue that conflicts of interest be-tween financial advisors and their clients are the main driver for our results. Strategic acquirers do not benefit from these previous indirect relationships altogether.

Suggested Citation

  • 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.
    • Handle: RePEc:usg:sfwpfi:2015:15
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    References listed on IDEAS

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    1. Matanova, Natalia & Steigner, Tanja & Sutton, Ninon & Thompson, Linh, 2022. "The influence of private equity and venture capital on the post-IPO performance of newly-public acquirers," The North American Journal of Economics and Finance, Elsevier, vol. 59(C).

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    More about this item

    Keywords

    Private Equity; Mergers and Acquisitions; Financial Advisors; Conflicts of Interest;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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