Investment Banking Relationships and Merger Fees
38 Pages Posted: 3 Nov 2008
There are 2 versions of this paper
Investment Banking Relationships and Merger Fees
Date Written: October 2001
Abstract
This paper is among the first to investigate the effect of a prior investment bankingrelationship on merger advisory fees paid by acquiring firms. We find that acquiring firms pay a higher fee to advisors when they have had a continuing relationship and a lower fee when they switch to an advisor with whom they have had no prior relationship. We develop ameasure of relationship strength between an acquiring firm and its merger advisor based on previous debt, equity and merger transactions completed by the acquiring firm. We also examine the relationship between a merger advisor s reputation and its ability to retain clients. We find that firms are more likely to switch if their M and A advisor is not a top tier investment bank. To test if higher fees are compensation for better performance, we examine differences between the average announcement returns of acquiring firms that switch advisors and those that do not. We find no significant difference between these two return samples.Overall, our findings indicate that acquiring firms perceive benefits of retaining mergeradvisors with whom they have had a prior relationship (even at the cost of higher fees) and/or they face some other (higher) costs of switching to new bank advisors.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
New Evidence and Perspectives on Mergers
By Gregor Andrade, Mark L. Mitchell, ...
-
Do Managerial Objectives Drive Bad Acquisitions?
By Randall Morck, Andrei Shleifer, ...
-
Stock Market Driven Acquisitions
By Andrei Shleifer and Robert W. Vishny
-
Stock Market Driven Acquisitions
By Andrei Shleifer and Robert W. Vishny
-
Poison or Placebo? Evidence on the Deterrent and Wealth Effects of Modern Antitakeover Measures
By Robert Comment and G. William Schwert
-
Does Corporate Performance Improve after Mergers?
By Paul M. Healy, Krishna Palepu, ...
-
Managerial Performance, Tobin's Q, and the Gains from Successful Tender Offers
By Larry H.p. Lang, Ralph A. Walkling, ...