Does Relationship Matter? The Choice of Financial Advisors

60 Pages Posted: 11 Nov 2012

See all articles by Bill Francis

Bill Francis

Rensselaer Polytechnic Institute (RPI) - Lally School of Management & Technology

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Xian Sun

Johns Hopkins University - Carey Business School

Date Written: October 18, 2012

Abstract

Using a sample of U.S. mergers and acquisitions, this study evaluates how banking relationships influence acquirers’ choice of financial advisors. Specifically, it examines: i) acquirers’ previous relationships with advisors in various financial activities: M&A advisories, equity issuings and lending activities; ii) the optimism of analyst recommendations; and iii) how acquirers’ past satisfaction with their financial advisors determines the choice of financial advisors. Overall, the findings suggest that the influence of banking relationships on a firm’s choice of financial institutions is limited in the area of M&A advisory business. The implications from the traditional “relationship banking” studies may not be suitable to explain how firms choose advisors, due to the wide variety of practices in investment banking activities. The evidence portrays that firms with M&A experience are more likely to switch financial advisors with poor deal outcomes. Firms without M&A experience, on the other hand, are more likely to choose their underwriters as financial advisors, especially when they provide overly optimistic analyst coverage prior to the transactions.​

Keywords: mergers and acquisitions, financial advisors, relationship banking, analyst coverage, conflict of interests, proactive

JEL Classification: G1, G14, G24, G28, G31, G34

Suggested Citation

Francis, Bill and Hasan, Iftekhar and Sun, Xian, Does Relationship Matter? The Choice of Financial Advisors (October 18, 2012). Bank of Finland Research Discussion Paper No. 28/2012, Available at SSRN: https://ssrn.com/abstract=2173194 or http://dx.doi.org/10.2139/ssrn.2173194

Bill Francis

Rensselaer Polytechnic Institute (RPI) - Lally School of Management & Technology ( email )

110 8th St
Troy, NY 12180
United States

Iftekhar Hasan (Contact Author)

Fordham University ( email )

45 COLUMBUS AVENUE
GBA-5TH FLOOR
NEW YORK, NY 10023
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

Xian Sun

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

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