IDEAS home Printed from https://ideas.repec.org/a/eee/corfin/v54y2019icp1-25.html
   My bibliography  Save this article

Premier advisory services for VIP acquirers

Author

Listed:
  • Liu, Qi
  • Sun, Xian
  • Wu, Hong

Abstract

We model an investment bank's choice of resource allocation by the probability of acquirers' mergers and acquisitions frequency in the future to theoretically link the role of investment banks to the acquirer returns. Our model predicts the heterogeneity in the quality of advisory services provided by the same investment bank that leads to the heterogeneity in acquirer returns. Such heterogeneity declines as the likelihood of an industry merger wave rises. Controlling for investment bank fixed effects, acquirer fixed effects and potential self-selection bias, we find empirical evidence supporting our hypotheses.

Suggested Citation

  • Liu, Qi & Sun, Xian & Wu, Hong, 2019. "Premier advisory services for VIP acquirers," Journal of Corporate Finance, Elsevier, vol. 54(C), pages 1-25.
    • Handle: RePEc:eee:corfin:v:54:y:2019:i:c:p:1-25
    DOI: 10.1016/j.jcorpfin.2018.11.002
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0929119917301062
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jcorpfin.2018.11.002?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Bart M. Lambrecht & Stewart C. Myers, 2007. "A Theory of Takeovers and Disinvestment," Journal of Finance, American Finance Association, vol. 62(2), pages 809-845, April.
    2. Maurizio Zollo & Harbir Singh, 2004. "Deliberate learning in corporate acquisitions: post‐acquisition strategies and integration capability in U.S. bank mergers," Strategic Management Journal, Wiley Blackwell, vol. 25(13), pages 1233-1256, December.
    3. Radner, Roy, 1985. "Repeated Principal-Agent Games with Discounting," Econometrica, Econometric Society, vol. 53(5), pages 1173-1198, September.
    4. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    5. Valeriy Sibilkov & John J. McConnell, 2014. "Prior Client Performance and the Choice of Investment Bank Advisors in Corporate Acquisitions," The Review of Financial Studies, Society for Financial Studies, vol. 27(8), pages 2474-2503.
    6. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    7. Mitchell, Mark L. & Mulherin, J. Harold, 1996. "The impact of industry shocks on takeover and restructuring activity," Journal of Financial Economics, Elsevier, vol. 41(2), pages 193-229, June.
    8. Vojislav Maksimovic & Gordon Phillips, 2001. "The Market for Corporate Assets: Who Engages in Mergers and Asset Sales and Are There Efficiency Gains?," Journal of Finance, American Finance Association, vol. 56(6), pages 2019-2065, December.
    9. Diamond, Douglas W, 1989. "Reputation Acquisition in Debt Markets," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 828-862, August.
    10. Boyan Jovanovic & Peter L. Rousseau, 2008. "Mergers as Reallocation," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 765-776, November.
    11. Kolasinski, Adam C. & Kothari, S. P., 2008. "Investment Banking and Analyst Objectivity: Evidence from Analysts Affiliated with Mergers and Acquisitions Advisors," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 43(4), pages 817-842, December.
    12. Aktas, Nihat & de Bodt, Eric & Roll, Richard, 2013. "Learning from repetitive acquisitions: Evidence from the time between deals," Journal of Financial Economics, Elsevier, vol. 108(1), pages 99-117.
    13. Mathew L. A. Hayward, 2003. "Professional influence: the effects of investment banks on clients' acquisition financing and performance," Strategic Management Journal, Wiley Blackwell, vol. 24(9), pages 783-801, September.
    14. Andrey Golubov & Dimitris Petmezas & Nickolaos G. Travlos, 2012. "When It Pays to Pay Your Investment Banker: New Evidence on the Role of Financial Advisors in M&As," Journal of Finance, American Finance Association, vol. 67(1), pages 271-312, February.
    15. Kreps, David M. & Wilson, Robert, 1982. "Reputation and imperfect information," Journal of Economic Theory, Elsevier, vol. 27(2), pages 253-279, August.
    16. Franklin Allen, 1984. "Reputation and Product Quality," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 311-327, Autumn.
    17. Diamond, Douglas W & Verrecchia, Robert E, 1991. "Disclosure, Liquidity, and the Cost of Capital," Journal of Finance, American Finance Association, vol. 46(4), pages 1325-1359, September.
    18. Shleifer, Andrei & Vishny, Robert W., 2003. "Stock market driven acquisitions," Journal of Financial Economics, Elsevier, vol. 70(3), pages 295-311, December.
    19. Aktas, Nihat & de Bodt, Eric & Roll, Richard, 2009. "Learning, hubris and corporate serial acquisitions," Journal of Corporate Finance, Elsevier, vol. 15(5), pages 543-561, December.
    20. Odekerken-Schroder, Gaby & De Wulf, Kristof & Schumacher, Patrick, 2003. "Strengthening outcomes of retailer-consumer relationships: The dual impact of relationship marketing tactics and consumer personality," Journal of Business Research, Elsevier, vol. 56(3), pages 177-190, March.
    21. Ming Dong & David Hirshleifer & Scott Richardson & Siew Hong Teoh, 2006. "Does Investor Misvaluation Drive the Takeover Market?," Journal of Finance, American Finance Association, vol. 61(2), pages 725-762, April.
    22. McLaughlin, Robyn M., 1992. "Does the form of compensation matter? *1: Investment banker fee contracts in tender offers," Journal of Financial Economics, Elsevier, vol. 32(2), pages 223-260, October.
    23. Friedrich Trautwein, 1990. "Merger motives and merger prescriptions," Strategic Management Journal, Wiley Blackwell, vol. 11(4), pages 283-295, May.
    24. Morellec, Erwan & Zhdanov, Alexei, 2005. "The dynamics of mergers and acquisitions," Journal of Financial Economics, Elsevier, vol. 77(3), pages 649-672, September.
    25. Allen Michel & Israel Shaked & You-Tay Lee, 1991. "An Evaluation of Investment Banker Acquisition Advice: The Shareholders' Perspective," Financial Management, Financial Management Association, vol. 20(2), Summer.
    26. Jan Bena & Kai Li, 2014. "Corporate Innovations and Mergers and Acquisitions," Journal of Finance, American Finance Association, vol. 69(5), pages 1923-1960, October.
    27. Carl Shapiro, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(4), pages 659-679.
    28. Collins, Jamie D. & Holcomb, Tim R. & Certo, S. Trevis & Hitt, Michael A. & Lester, Richard H., 2009. "Learning by doing: Cross-border mergers and acquisitions," Journal of Business Research, Elsevier, vol. 62(12), pages 1329-1334, December.
    29. Michael Gort, 1969. "An Economic Disturbance Theory of Mergers," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 83(4), pages 624-642.
    30. Anup Agrawal & Tommy Cooper & Qin Lian & Qiming Wang, 2013. "Common Advisers in Mergers and Acquisitions: Determinants and Consequences," Journal of Law and Economics, University of Chicago Press, vol. 56(3), pages 691-740.
    31. 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.
    32. Jack Bao & Alex Edmans, 2011. "Do Investment Banks Matter for M&A Returns?," The Review of Financial Studies, Society for Financial Studies, vol. 24(7), pages 2286-2315.
    33. Kathleen Fuller & Jeffry Netter & Mike Stegemoller, 2002. "What Do Returns to Acquiring Firms Tell Us? Evidence from Firms That Make Many Acquisitions," Journal of Finance, American Finance Association, vol. 57(4), pages 1763-1793, August.
    34. Moeller, Sara B. & Schlingemann, Frederik P. & Stulz, Rene M., 2004. "Firm size and the gains from acquisitions," Journal of Financial Economics, Elsevier, vol. 73(2), pages 201-228, August.
    35. Kale, Jayant R. & Kini, Omesh & Ryan, Harley E., 2003. "Financial Advisors and Shareholder Wealth Gains in Corporate Takeovers," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(3), pages 475-501, September.
    36. Servaes, Henri & Zenner, Marc, 1996. "The Role of Investment Banks in Acquisitions," The Review of Financial Studies, Society for Financial Studies, vol. 9(3), pages 787-815.
    37. J. Fred Weston, 2001. "Merger and Acquisitions as Adjustment Processes," Journal of Industry, Competition and Trade, Springer, vol. 1(4), pages 395-410, December.
    38. Raghavendra Rau, P., 2000. "Investment bank market share, contingent fee payments, and the performance of acquiring firms," Journal of Financial Economics, Elsevier, vol. 56(2), pages 293-324, May.
    39. Chemmanur, Thomas J & Fulghieri, Paolo, 1994. "Investment Bank Reputation, Information Production, and Financial Intermediation," Journal of Finance, American Finance Association, vol. 49(1), pages 57-79, March.
    40. Golubov, Andrey & Yawson, Alfred & Zhang, Huizhong, 2015. "Extraordinary acquirers," Journal of Financial Economics, Elsevier, vol. 116(2), pages 314-330.
    41. Stickel, Scott E, 1992. "Reputation and Performance among Security Analysts," Journal of Finance, American Finance Association, vol. 47(5), pages 1811-1836, December.
    42. Lambrecht, Bart M., 2004. "The timing and terms of mergers motivated by economies of scale," Journal of Financial Economics, Elsevier, vol. 72(1), pages 41-62, April.
    43. Alexander Ljungqvist & William J. Wilhelm, 2005. "Does Prospect Theory Explain IPO Market Behavior?," Journal of Finance, American Finance Association, vol. 60(4), pages 1759-1790, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. Feng, Yun & Liu, Chelsea & Yawson, Alfred, 2023. "Economic shocks, M&A advisors, and industry takeover activity," Pacific-Basin Finance Journal, Elsevier, vol. 82(C).
    3. Martynova, Marina & Renneboog, Luc, 2008. "A century of corporate takeovers: What have we learned and where do we stand?," Journal of Banking & Finance, Elsevier, vol. 32(10), pages 2148-2177, October.
    4. Andrey Golubov & Dimitris Petmezas & Nickolaos G. Travlos, 2013. "Empirical mergers and acquisitions research: a review of methods, evidence and managerial implications," Chapters, in: Adrian R. Bell & Chris Brooks & Marcel Prokopczuk (ed.), Handbook of Research Methods and Applications in Empirical Finance, chapter 12, pages 287-313, Edward Elgar Publishing.
    5. Guo, Jie (Michael) & Li, Yichen & Wang, Changyun & Xing, Xiaofei, 2020. "The role of investment bankers in M&As: New evidence on Acquirers’ financial conditions," Journal of Banking & Finance, Elsevier, vol. 119(C).
    6. Eckbo, B. Espen, 2009. "Bidding strategies and takeover premiums: A review," Journal of Corporate Finance, Elsevier, vol. 15(1), pages 149-178, February.
    7. Qingzhong Ma, 2013. "Investment banks advising takeover targets," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 37(3), pages 339-374, July.
    8. Johannes Kolb, 2019. "Do investment banks create value for their clients? Empirical evidence from European acquisitions," European Financial Management, European Financial Management Association, vol. 25(1), pages 80-115, January.
    9. repec:zbw:bofrdp:2012_028 is not listed on IDEAS
    10. An, Suwei, 2023. "Essays on incentive contracts, M&As, and firm risk," Other publications TiSEM dd97d2f5-1c9d-47c5-ba62-f, Tilburg University, School of Economics and Management.
    11. Delis, Manthos D. & Iosifidi, Maria & Kazakis, Pantelis & Ongena, Steven & Tsionas, Mike G., 2022. "Management practices and M&A success," Journal of Banking & Finance, Elsevier, vol. 134(C).
    12. Martynova, M. & Renneboog, L.D.R., 2005. "Takeover Waves : Triggers, Performance and Motives," Discussion Paper 2005-029, Tilburg University, Tilburg Law and Economic Center.
    13. Anna Loyeung, 2019. "The role of boutique financial advisors in mergers and acquisitions," Australian Journal of Management, Australian School of Business, vol. 44(2), pages 212-247, May.
    14. Martynova, M., 2006. "The market for corporate control and corporate governance regulation in Europe," Other publications TiSEM 8651e281-4914-41f2-ac14-1, Tilburg University, School of Economics and Management.
    15. Walter, Terry S. & Yawson, Alfred & Yeung, Charles P.W., 2008. "The role of investment banks in M&A transactions: Fees and services," Pacific-Basin Finance Journal, Elsevier, vol. 16(4), pages 341-369, September.
    16. Chahine, Salim & Ismail, Ahmad, 2009. "Premium, merger fees and the choice of investment banks: A simultaneous analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(2), pages 159-177, May.
    17. Graham, Michael & Walter, Terry S. & Yawson, Alfred & Zhang, Huizhong, 2017. "The value-added role of industry specialist advisors in M&As," Journal of Banking & Finance, Elsevier, vol. 81(C), pages 81-104.
    18. Lyu, Huaili & Wang, Wenming, 2020. "Individual financial advisor's reputation concern and M&A performance: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 60(C).
    19. 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.
    20. Leledakis, George & Mamatzakis, Emmanuel & Pirgiotakis, Manos & Travlos, Nikolaos, 2017. "What twenty years of regulations have to say about M&As of U.S. banks?," MPRA Paper 82977, University Library of Munich, Germany.
    21. Chuang, Kai-Shi, 2014. "Financial advisors, financial crisis, and shareholder wealth in bank mergers," Global Finance Journal, Elsevier, vol. 25(3), pages 229-245.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:corfin:v:54:y:2019:i:c:p:1-25. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jcorpfin .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.