【Abstract】

This paper investigates whether top-tier M&A (mergers and acquisitions) investment bankers (financial advisors) create value for acquirers with different financial conditions in both the short- and long-term by analyzing 3,420 US deals during 1990-2012. In this paper, deals are divided into three groups based on acquirer financial constraints – acquisitions by constrained, neutral and unconstrained firms. We find that the effects of top-tier bankers are dependent on acquirer financial conditions. Specifically, top-tier advisors improve performance for constrained acquirers rather than neutral and unconstrained acquirers. Our results show that top-tier investment bankers improve constrained acquirers’ short- (five days) and long-term (36 months) performance by 1.45% and 24.27% respectively, after controlling for firm, deal and market characteristics. For deals with investment banker involvement, constrained acquirers advised by top-tier advisors have the lowest deal completion rate, and pay the lowest bid premiums; while unconstrained acquirers that retain top-tier investment bankers have the highest deal completion rate, and pay relatively high bid premiums. Our findings imply that constrained acquirers tend to retain top-tier investment bankers to gain superior synergy, while unconstrained acquirers appear to retain top-tier investment bankers to ensure deal completion.

【Keywords】

Mergers and acquisitions; Investment banker; Financial constraint; Acquirer performance

【Authors】

Guo Jie and Li Yichen, Business School, Durham University

Wang Changyun, IMI Academic Committee Member, School of Finance, Renmin University of China

Xing Xiaofei, Business School, University of Birmingham