Journal of Economics and Finance

, Volume 37, Issue 3, pp 339–374

Investment banks advising takeover targets


DOI: 10.1007/s12197-011-9192-9

Cite this article as:
Ma, Q. J Econ Finan (2013) 37: 339. doi:10.1007/s12197-011-9192-9


Should takeover target firms hire top-tier investment bank advisors? For a sample of mergers and acquisitions between publicly traded U.S. acquirers and targets, in deals in which targets hire top-tier banks, targets earn higher premiums and abnormal returns; the probability of stock payment is lower, especially when bidder stock is potentially overvalued; acquirers, however, do not necessarily earn lower abnormal returns, and combined returns are higher. Controlling for self-selection does not erode, but, in some cases even strengthens the results. The evidence suggests that top-tier investment banks advising targets benefit shareholders of client firms by making better deals, instead of simply bargaining against the acquirers. The findings shed light on the role of advisor incentives when linking advisor quality and shareholder wealth.


MergerAcquisitionInvestment BankingIncentive

JEL Classification


Copyright information

© Springer Science+Business Media, LLC 2011

Authors and Affiliations

  1. 1.School of Hotel AdministrationCornell UniversityIthacaUSA