Review of Quantitative Finance and Accounting

, Volume 35, Issue 4, pp 411–429

Are good financial advisors really good? The performance of investment banks in the M&A market

Authors

    • College of Business and EconomicsUnited Arab Emirates University
Original Research

DOI: 10.1007/s11156-009-0155-6

Cite this article as:
Ismail, A. Rev Quant Finan Acc (2010) 35: 411. doi:10.1007/s11156-009-0155-6

Abstract

The study examines whether prestigious investment banks deliver quality gains to their clients in a sample of 6,379 US M&A deals. It finds that acquirers advised by tier-one advisors lost more than $42 billion, whereas those advised by tier-two advisors gained $13.5 billion at the merger announcement. The results were mainly driven by the large loss deals advised by tier-one advisors. The evidence indicates that investment banks might have different incentives when they advise on large deals vs. small deals. The results imply that market share based reputation league tables, could be misleading and therefore, the selection of investment banks should be based on their track record in generating gains to their clients. The findings were consistent with the superior deal hypothesis as tier-one target advisors outperformed tier-two advisors and the existence of a prestigious advisor on at least one side of an M&A transaction resulted in higher wealth gains to the combined entity. Target advisors were able to extract more wealth gains for their clients, which led to higher combined gains at the expense of the acquirer.

Keywords

Investment banksPrestigiousGainsMergers and acquisitions

JEL Classification

G34

Copyright information

© Springer Science+Business Media, LLC 2009